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information technology | IST

The inside story of how L&T agreed to buy VG Siddhartha's stake—and its plans for Mindtree

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Siddhartha, who backed Mindtree when it was founded in 1999, has been seeking an exit from the company since 2018. Siddhartha’s urgency in looking for a buyer for his stake may be related to the Rs 300 crore owed to income tax authorities and rising debts at his investment firm Sivan Securities, according to media reports.

A few years back, when the management of Mindtree approached Larsen & Toubro (L&T) for buying a stake in the IT services company, it failed to stir up interest.
Not because Mindtree deal was less lucrative then, but simply because L&T had too much on its plate.
“We were not very particular at that time for various reasons, we were concentrating on the heavy capex that we were making on the manufacturing side and within L&T the succession planning was going on and therefore I don’t think we had much views on the same,” SN Subrahmanyan, CEO & MD of L&T, said on a conference call on Tuesday.
But Mindtree kept its pursuit on and this time, it was an emotional shareholder seeking a safe-house for its most cherished investment.
VG Siddhartha, the owner of a 20.4 percent stake in Mindtree, reached out to L&T about three months back and asked whether they would be interested in looking at his shareholding in Mindtree.
The immediate reaction of L&T, a conservative company with its view of how they go about business, was neutral but dialogues continued between the company and Siddhartha, also the founder of Cafe Coffee Day outlets.
Siddhartha, who backed Mindtree when it was founded in 1999, has been seeking an exit from the company since 2018. Siddhartha’s urgency in looking for a buyer for his stake may be related to the Rs 300-crore owed to income tax authorities and rising debts at his investment firm Sivan Securities, according to media reports.
“Siddhartha is an involved person, in the sense he has been part of the Mindtree shareholding since about 19 years … There is a lot of emotion and a sense of pride with him (for Mindtree),” said Subrahmanyan.
According to Subrahmanyan, Siddhartha wanted to house his Mindtree shareholding with a set of people “in which he saw the same type of governance values, principles, and ethics of business.”
“He (Siddhartha) is emotional about it and as one would know we are emotional owners of L&T in that sense and we looked at it after some 3-4 round of meeting in the same manner,” Subrahmanyan added.
The deal makes a lot of strategic sense for L&T. Its software unit, L&T Infotech, is predominantly into banking, oil and gas, and insurance fields while Mindtree is into consumer packaged goods (CPG), retail, hospitality, travel and the technology space.
Some analysts were also optimistic given the deal did not involve the integration of Mindtree into L&T, which already owns a 74.8 percent stake in IT consultancy firm Larsen & Toubro Infotech Ltd..
“It was a meeting of minds, one could say that,” said Subrahmanyan.
But Mindtree promoters are condemning the deal. The founders and promoters of the IT company have unconditionally opposed the reported hostile takeover bid by L&T as they believe the L&T deal is a “grave threat” to the organization that they have built over the years.
Subrahmanyan, however, said the move to acquire Mindtree should not be seen as hostile and assured shareholders of both the firms that the approach should be understood with love and consideration.
“Obviously, when promoter, founders over a period of time find that one of the important promoters or initial investors moves out and wants to place his stakeholding in another house or in another matter, there are certain emotionality and trepidations involved that is visible as we see it,” Subrahmanyan said.
“What we are trying to do is with, if I can use the word ‘pyaar’ and we will continue to look at it as something which we are doing from a 'dil'. We would like an intent to take it forward in the same manner and purpose,” he said.
L&T could potentially spend $1 billion to acquire a controlling stake in Mindtree, in a hostile takeover that would be a first in India’s IT industry.
It remains to be seen how L&T’s billion-dollar gamble will pay off but the management believes it is a good addition to the overall L&T portfolio and they have done the right thing in getting hold of it.
“It is probably the best home in the country, as we see it.”