Mindtree prepared for a set of eventualities: Krishnakumar Natarajan

Natarajan tells Debasis Mohapatra & Bibhu Ranjan Mishra the focus is to ring-fence customers and staff

Krishnakumar Natarajan, co-founder and executive chairman of  Mindtree, says the timing of the L&T offer is worrisome as the company is just about to yield benefits of efforts it had put in the past so many years. In an interview with Debasis Mohapatra & Bibhu Ranjan Mishra, Natarajan says focus is to ring fence customers and employees. Edited excerpts:

Where do you stand today as far as L&T open offer is concerned?

As far as we are concerned, it's back to business. Our focus is on Mindtree and Mindtree Minds (employees), and also ensuring that we don't miss a bit of business. It is important that we ring-fence our customers and employees. The second is the process (of open offer) has been initiated. We know the details. So, we are making a case to our shareholders saying that, this is what we have done as a company for the last several years. We need to give objectively what we stand for and then they will obviously make their decision.

Is the management fighting a lost battle?

Not really. The process has just been initiated and the shareholders will decide. It's too premature to say what will happen. After all, many exit polls (on elections) have gone wrong in their predictions earlier.

Many market analysts say that the open offer may sail through. What’s your view?

If you see historically, which is supported by data, there have been different experience. There has never been a substantive tendering of shares. I am leaving alone that. So, at this time, we should allow the genuine interested parties, which are the shareholders, to make an objective decision.

Why did the board decide not to go ahead with the proposed (share) buyback programme? It was considered as a tool to thwart the takeover bid?  

I want to put the record straight. Firstly, it’s the board not the promoters who had unanimously taken a decision to consider a buyback proposal. And it was not the first time, we were doing it (buyback). We have done one (share buyback) in 2017 and similarly, we have also done bonus issues in 2012 and 2014, all of which were good decisions. So, when we have cash and don't have any plans for an immediate large-scale acquisition, we have given it back to the shareholders. And the buyback announcement was done much before the (L&T) deal.

Was it rather a technical issue because of which the company didn’t go ahead with the buyback plan?

Yes (It's for the technical issue of 75 per cent shareholding approval). The board debated a lot and then felt that it (not to go with the buyback plan) was the most practical and logical thing to do now.

What is making you worried about L&T's offer?

In every decision, timing is a crucial element. We took an early call on digital and, so, for 2-3 years, our margins looked low. A lot of these things are turning around. This year, we will end at the top quartile of growth. In the next two years, our margins will start moving up. So, we have done all the work. We tilled the land, fertlised it, put the right seeds, and it is starting to grow well. It may give us a great yield. Now, if a tornado spoils that, it’s not the right thing for the shareholders.

The L&T chairman has already stated that they want you to continue to run Mindtree as the executive chairman? There are indications that the company may also sweeten the offer. Where’s the problem then?

Mindtree has never been an individualistic company. It was nothing to do with the individual decisions and what they want. Also, in case of takeovers, history gives certain pointers about the outcomes. Within the limited spectrum of IT services, we have not seen value accretion in case of takeovers.

So, the first proposal from L&T about the founders and the current management is not appealing to you?

We have always considered Mindtree as a perpetual asset, which certainly outlives us. Mindtree as a concept and an idea should be there. The second idea is the concept of shared wealth. Probably, we are the first company to give 16.67 per cent of our equity to all Mindtree minds and the number of rupee millionaires we created is substantive, and that continues. If you look at the partners which Mindtree works with, small enterprises which started working with us back in 2000, continue to work with us and they have grown much larger now. The third aspect is how do commercial enterprises give back to the society. What we do for children with special needs are important aspects.

What makes you to believe that if L&T comes on board, they will destroy all these things?

No, we are not saying that. To me, it is completely immaterial that L&T has an employee welfare trust and Mindtree has its own foundation. Both have certain objectives. But, what certainly worrisome is the timing issue. Our stakeholders have put all the hard work and they could have reaped the benefit in next three years. So, any intervention at this time, may have risks instead of gains.

But is it really a hostile takeover when it was your largest shareholder who has gone to L&T had sold his stake?

We are not giving any new definition of what is called a hostile takeover. According to English jurisprudence, the directors have a fiduciary responsibility, the largest shareholder also has a fiduciary responsibility. There is nothing wrong with him (V G Siddhartha who was the largest shareholder) who monetising his stakes, but he can't sell the company. There is a vast difference between the two.

As per the Indian regulations, the deal is not illegal. In a publicly-traded company, an investor has every right to sell his stake. Isn’t it?

We are not saying it is illegal. But, is it fair practice? We have grown from the stables of Mr Azim Premji, where we were taught do what is right and not convenient. To me, this is in a grey zone. The responsibility of a large shareholder is also that of stewardship, which can't be defined by law.

Now, after share transfer L&T will have 21.32% in Mindtree and mopping up another 5% will not be difficult (assuming that open offer may not get the shareholders support), which will ensure them at least a board seat. In such a scenario, what are your options?  

There are hundreds of options and board is continuously discussing that. It is not fair on our part to share them. Because, it is important that we think through that and do what is important for the organisation.

So, even if L&T allows the current management to run the company the way it is driving it and protect the interests of shareholders, you are not ready to budge?

At this time, this is too early to comment because you are talking about a scenario.

But, they (L&T) have publicly stated it.

But again, this scenario might change. To be honest, we are quite clear that we will protect our shareholders, customers and Mindtree minds (employees). Within the gambit of that, there can be thousands of options, which can be worked out. That's something, we will work as we reach certain stage. Right now, this is more of a conjecture, and there are many moving parts. This is the just the trailer of the movie and whole movie is yet to be played out.

Are you mulling to make a competitive offer?

It's important to see how the game is being rolled out. We are aware of that fact that once the share transfer transaction is over, L&T will be a shareholder (in Mindtree) and we are very respectful of our shareholder. We think, there can certainly be a middle ground to protect the interest of our customers, shareholders and Mindtree minds. We don't have any ego (issue) with that.

When you are saying that a ‘middle ground’ can be achieved through mutual discussion, is there anything going on now to make that possible?

It will happen. There is a process which has been initiated. As the process gets over, there will be more clarity from both the sides, and consequently, that's in the best interest of the shareholders to find the middle ground.

Don't you feel that L&T coming on board without any change in the current management of Mindtree and keeping it as an independent entity is a lot better than having a private equity investor? This can potentially save you from any such scenario in the future.

There’s a little difference. Look at conglomerates like Mahindra, Wipro or any such entities. In these groups, the promoter sets the value of the group. When you create a company as part of the conglomerate, it is an identical set of ethos and values that reflects in the company. Operationally, they can be independent. So, within the conglomerate, when you try to put the same set of ethos and values to an entity which has been raised in a different way, it is important to see how much of those are translated.

But, L&T is a professionally managed company. There is no promoter per se.

I think, every conglomerate works in that way. What we are saying is, they have different values and ethos. So, we need to see what the extent of difference is and how you can manage the transition. Because, to me, it doesn't make sense (for L&T to treat this) as a financial investment. If you treat it as an investment, then there is no synergy and there’s no value for shareholders' money.

Are you saying that you are not too sure about L&T’s values and ethos?

No, I am saying that they are different. We need to see what the extent of the difference is, and how you can manage that transition.

But you are certain that a middle ground is possible through mutual discussion, right?

Yes, it’s certainly possible.

Are things moving in that direction?

I won’t say that. To be honest, our effort now is to focus on customers and Mindtree Minds (our employees).

What actually happened in case of V G Siddhartha? You were so optimistic that he won’t do anything which will harm the company and its stakeholders.

That’s a question you should ask him. I can’t comment on that. That’s a decision that he has taken. It was our understanding that he won’t do anything that will harm the company.

Did you not arrange a buyer for him?

All that I can say that we put in tremendous level of energy and effort to solve the problem, but for whatever reason, it didn’t work that way. But again, one important lesson that we all have learnt from Mr Premji is that ‘for any action of yours, you must be able to stand the public scrutiny’, and we believe in that.

Are you a little disappointed that Mindtree management/promoters have not got enough support from the doyens of Indian IT in this battle or at least they are not coming out in open?

These are individual decisions. At the end of the day, people should do what they are comfortable. The fundamental philosophy of the IT industry is that many times you compete, but you also collaborate.

Do you have the support of all large institutional shareholders including Nalanda Capital?

I can’t give you specific names. We are certainly satisfied and overwhelmed by the kind of support we have received (from them). They support us for the value creation and the level of corporate governance standards we had laid out for the company, than anything else. We are quite conscious of the fact that they also have to be accountable to their shareholders. They can’t make emotional decisions.

Do you believe that the current management team that includes you, Rostow Ravanan (the CEO) and others has a lot more productive years left to contribute towards the growth of the company?

Absolutely. We are very clear in terms of what’s the future is and how will that create value for our shareholders. And to be honest, we have reached this position not by serendipity but because of a lot of hard works which have been done in the last 2-3 years.

What are your expectations from L&T?

It needs to be through and to be honest. The more we engage with our customers and stakeholders, we will have better clarity on what is that they need, and then we will make our own synthesis.

We don’t know what L&T’s strategic objectives are. The board with whatever limited information felt it was an unsolicited offer. Yes, it is good for L&T because they have stated a strategic objective of enhancing the size of the asset-light business. But they also say their size will help us in enhancing business and their ability to get capital will help us to get more business. But we are in a business where we won’t require capital. So what’s the extra fuel that will be put in which will change the trajectory?

So you are prepared for any eventuality?

There could be multitude of eventualities. So I would say, we are prepared for a set of eventuality.