Our offer for Mindtree a win-win deal for both, says L&T top brass

L&T management led by its CEO & MD SN Subrahmanyan and L&T's CFO and Member of Board R Shankar Raman said the firm was interested in growing its services business where returns are higher

Construction major Larsen & Toubro made an acquisition offer for IT firm Mindtree which is termed “hostile” by the Bangalore-based firm. In an interview to Dev Chatterjee and Romita Majumdar, the L&T management led by its Chief Executive Officer & Managing Director SN Subrahmanyan (right) and L&T's Chief Finance Officer and Member of Board R Shankar Raman said the firm was interested in growing its services business where returns are higher. Excerpts.

One of the founders of Mindtree, Subrato Bagchi, has said he must protect the Tree from people who have arrived with bulldozers and saw chains to cut it down so that in its place, they can build a shopping mall. What’s your take?

Shankar Raman: According to me, a person of Bagchi’s stature should not stoop down to street fighting. We have been extremely dignified and we refuse to join this war of words with him. The intent, according to us, is noble. We see this acquisition as an opportunity to build our portfolio and services business. It was the existing shareholder of Mindtree, VG Siddhartha who approached us and it’s not as if we went around shopping for it.  Siddhartha told us very emphatically that he needs a safe place to park his shares because he’s been a shareholder for close to 20 years.

Siddhartha could have sold his shares in an auction. But he did not as he wanted Mindtree to grow and he narrowed down on us as somebody who will take that culture forward. So, we were presented with an opportunity and we did not go out seeking for it. I don't think they know L&T’s background and made such comments.

There is opposition to L&T offer from employees and management? Why do you think that Mindtree empl­oyees should support you? 

SN Subrahmanyan: People need to understand what L&T is.  It is an 80-year-old firm and is owned by employees and institutional investors. Nineteen per cent of L&T holding is with its staff and value of that holding is with Rs 40,000 crore based on our present market capitalisation. One must also look at our history. We listed our company way back in 1952 and have paid dividend since then every year. 

How did the talks with Siddhartha begin and what was your reaction?

Subrahmanyan: When Siddhartha approached us, we were neutral and we didn't know how to react. In fact, about five-six years back, it was Mindtree management which approached us first to seek whether we would be interested in buying the stake. We were not keen at that time as Siddhartha was not keen to sell at that time and we were very small in IT area. Today, we have a $2 billion IT business which is growing at the rate of 20 to 22 per cent.  When Sidd­hartha approached us again, he told us he would tr­ust Mindtree with us. He wanted Mindtree to be housed in a nice pla­ce. 

But Mindtree promoters are calling L&T’s offer as hostile. How will you react to that?

Subrahmanyan: We are not hostile to Mindtree. According to L&T’s principle, we don’t take a minority position in any company. We want minimum 26% stake and if possible, we want to have a majority stake.  I don't interfere with the management but we need to have a say in the board. I need to be a full owner because I’m committed to the company with my involvement, with my passion, with my sincerity with my convincing abilities, and with all my enormous power to see that it is nurtured like any of our businesses. 

What do you have to say about your IT business. Why L&T’s IT businesses could not scale it up in the past? 

Subrahmanyan:  We have done our best in what could have done in that circumstances. Ultimately, businesses are left to the individual CEOs to propel with their ambition. Under the circumstances, our companies have done well.  

You can say we could have grown faster looking at some of the IT peers. In the past, the L&T’s top management mind was on EPC business, which is our bread and butter and the emphasis was less on IT services. But this is changing. L&T Infotech is into banking, insurance, manufacturing, oil and gas energy verticals and now we will have Mindtree, which is into retail, hospitality, travel and technology which is totally different. With this acquisition we will have $3 billion IT business and may be that would give us some respectability from scale point. And maybe it would also give us a front seat at NASSCOM.  We want to tell Mindtree management and its staff that it is a win-win deal for both of us. Since listing, L&T Infotech has added 35% CAGR to shareholders value since 2009.