‘Hostility from other side persuaded us to look at Mindtree’

Thomas K Thomas Mumbai | Updated on March 20, 2019 Published on March 19, 2019

SN Subrahmanyan (right), CEO and MD, Larsen&Toubro, along with R Shankar Raman, Wholetime Director & CFO, addressing a press conference in Mumbai on Tuesday   -  PAUL NORONHA

For a company that thwarted a takeover bid in the late 1980s, life has come a full circle for L&T as it girds to acquire IT services firm Mindtree. BusinessLine met L&T CEO SN Subrahmanyan (SNS) and R Shankar Raman (RSR), Wholetime Director and Chief Financial Officer, to understand why the deal matters. Excerpts:

Way back, L&T itself was a target of a takeover. Now the role has reversed. Is there a change in how L&T looks at takeovers or is everything fair in business?

SNS: About six years back I am told the present management of Mindtree, founders, approached the then L&T management and asked, “Can you buy our stake?”. We did not show interest for two reasons: Siddhartha was not supportive at that time and second, I think we didn’t have the bandwidth to do it. Today we are much different, we have also evolved and grown over the period of time. It was through a mutual friend that Siddhartha, whom I knew for a long time, came and contacted me and said I have 21 per cent would you like to take a look at it. We were neutral at that time because we have not thought about anything like that. But then he kept on persuading me and pursuing... at one point of time, when somebody comes three-four times... I started looking at it. So I did an analysis, we all went into all the details, we consulted people, we consulted our chairman, board, and we found it worth looking at, that’s when we got serious. This was rather hostility from that side rather than from my side that persuaded us to look at it.

We did have a dialogue with Mindtree management a few times, we did try to convince them, in the meeting they sounded convinced, but they would go back and have a different view.

RSR: Please do remember, back then a family was trying to own a professional organisation. Here is the case of two professional organisations trying to find the balance to sail together.

Watch: L&T CEO and CFO speak to BusinessLine

But did you look at other IT services? Is takeover a right route, why not M&A or acquisition?

SNS: We were not looking out. We were interested in tuck-in acquisitions and we continue to do that. It is a persuasion of a major shareholder which made us look into it. That’s the way we went upon it.

Once you go into it, we need to have some 26 per cent and over a period of time acquire more and our intention is to keep that company absolutely independent, run it as an independent company.

Does this deal help you to catch up with the big 5 in the Indian IT space?

SNS: If you see all of our businesses, we are either number one or number two. In IT we are far behind, we are 8th or something like that — both IT (L&T Infotech) and technology (L&T Technology) services put together.

Scale does matter in the world; otherwise clients don’t respect. So if we can move to six or five, it brings some respectability, as I keep saying, we’ll get a front seat at the NASSCOM meetings.

Secondly, please understand, when you grow up to $1 billion, your aspiration goes to $2 billion. And you can’t do $2 billion the way you did $1 billion — you have to step up. It means taking bigger contracts. If you are to get invited to $50-100 million contracts, you need to have a balance sheet to do it.

But if you don’t have connect with the existing management, how do you plan to work that?

SNS: When I first met my wife, I ran behind her, even today I call it love marriage, she calls it arranged marriage. We have been together for 31-32 years. That’s life. We will try to overcome hurdles as it comes, our intention is to be nice, good, our intention is to embrace.

Mindtree’s management point is if L&T needs scale, why not to build it?

RSR: If there is an opportunity for me to create value to Mindtree shareholders, to L&T shareholders, it makes a lot of sense for me to look at this opportunity closely... Now, the reactions this has generated come out of uncertainty, and mind is unstable when you are not sure how to adjust, these kind of immediate reactions come. These things will settle down.

SNS: We have not told the Mindtree management, “You are removed, we are going to merge.” I offered the management when we had private dinner multiple times and Krishnakumar is an iconic gentleman, I have greatest respect for people who start business and develop it because I’ve not been able to do that.

Globally, there is a trend that founders tend to exit once it gets acquired by somebody else...

RSR: You can’t appropriate talent and technology to x number of individuals. The successful leaders are those who institutionalise capabilities. I would be very worried if the company, after 20 years, is going to be dependent on some five individuals. The clients need to be very worried.

So in case you won’t be able to get around 50 per cent, would you still invest?

RSR: That is a done deal and no going back on that. What we are now supposed to do as a responsible company — build on it. We are not there looking for a seat at the table. And in most of our subsidiaries we own excess of 50 per cent. This is something that will not happen overnight. And, we are in for a long haul. We will gain respect. I am sure one day we will sit and talk about this as a case study of how two professional organisations can come together.

Published on March 19, 2019
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