Mindtree-L&T saga far from over, but founders could benefit from not letting emotions guide their decisions

From describing the company as a ‘Tree’ to describing L&T as people who have arrived with ‘bulldozers and saw chains so that they can build a shopping mall in its place’; and from ‘pyaar and dil’ to ‘MeToo’, the Mindtree-L&T tug of war sure saw a dramatic war of words.

These are not the sort of analogies you will often see in a merger and acquisition in the corporate world. However, it was a rare ‘hostile takeover’ in India’s IT industry.

It is hard to dismiss the drama that unfolded last week when the construction major L&T took over Mindtree. It had all the elements required for a drama – high on emotion, a lot of anger and the longing for a white knight to save the victims from the bad guys.

Only here, the bad guys are L&T, and the victims are Mindtree promoters, the object of India’s first hostile takeover in the IT services industry. The white knight that the latter’s promoters are looking for is the investors, who can help them retain the control.

Though the whole saga is nowhere near its end, after a week many have raised one question –Is there any need for this drama anymore? Sure, it was a rare hostile takeover but is the unnecessary drama helping anyone’s cause, many ask as one scrolls down the Twitter feeds.

Mindtree was a company founded and nurtured by the ten founders from modest backgrounds with care and affection. It is commendable how the promoters have been able to imbibe in the values of the company in Mindtree minds, as the employees are called.

Financially too, though Mindtree missed its $1 billion mark twice since 2012, it had performed consistently well since it was listed in 2007. The company is likely to reach its $1 billion this fiscal. It is also one of the few companies to focus on digital early, and revenues from digital now account for close to 50 percent of its revenues.

All this has made Mindtree an attractive investment. L&T first approached Mindtree a few years ago for acquisition and in the founder's words, "They rejected it.” When the chance to pick up the majority stake in the company came in the form of VG Siddhartha’s 20.32 percent stake three months ago, L&T grabbed the opportunity.

After 20 years in the company, you can’t blame Siddhartha for wanting an exit and furthering his coffee business, which is in a debt of Rs 3000 crore. If anything, Siddhartha made his intentions clear when he stepped down from the board in March 2018. He also made it public that he has been looking for investors to sell his stake in December last year.

Why did the Mindtree promoters not take the developments seriously?

Rostow Ravanan, co-founder and CEO, in a recent press conference, said that it is not the company’s responsibility but the stakeholder's (who is selling) to look for a suitable investor. “In our exit clause, we have clearly mentioned that the stakeholder should not sell his stakes to the competitor and L&T is a competitor,” Ravanan explained.

Though the exit clause has expired and Siddhartha did not violate any laws, the founders are clearly miffed that he sold his stake to L&T. At this point, many ask, not surprisingly, why did founders not take any action sooner? Saying that it came as a surprise only after the deal was signed, does not cut it.

With just 13 percent stake in the company, they do not have the majority. Unlike Siddhartha, who did not interfere with the company decisions, most majority stakeholders would want a say in company decisions be it Baring PE or KKR & Co. This was probably why none of the conversions with investors turned positive.

However, now not many options are left. While the largest stakeholders, such as Nalanda, are backing the founders, it is clearly not enough. As push comes to a shove, founders should not let their emotion guide them. This might be their child, but they need to think objectively about the betterment of their child.

Even if it means, moving on, with dignity.