It all began way back in 1986, with a not-so-princely sum of Rs 1 crore, when Keshub Mahindra set up Tech Mahindra jointly with BT to get into telephony business in Maharashtra. But the government turned down his plan, as it did not want private sector presence in telecom space. So, he got into IT outsourcing business, more by accident than choice. And 23 years on, Tech Mahindra is the country’s fourth-largest IT company after acquiring the fraud-hit Satyam.
A couple of days before taking over the management control of Satyam on Monday, the 85-year-old M&M group chairman Keshub Mahindra told ET that he thought he had bagged Satyam at a walk-away price. He is aware of the challenges facing Satyam, which he thinks is a great company, and quite confident of steering it out of the woods. Mr Mahindra also praised the government for the swiftness with which it tackled the Satyam issue, and the transparency with which the sale proceess was conducted.
Does the Satyam acquisition translate into a fundamental change for the group?
Not really. IT has been a part of our overall operations since 1986, when I formed Tech Mahindra with British Telecom. The original collaboration was meant to get into telephony business. We presented a scheme to the government to provide telephone services for Maharashtra. But the government turned it down. We then decided to get into telecom software. Then, we had this wonderful opportunity to acquire Satyam, which is a beautiful fit in our scheme of things. Satyam is not only into telecom, it has a presence in 4-5 other verticals where we don’t have a presence.
Since it’s all over now, can you tell us if Rs 58 a share bid was the maximum that you would have offered?
Difficult to say. But my guess, and this is my personal guess, is that it is a walk-away price (the maximum price Tech Mahindra was ready to offer). We could have bid lower. But I want to say it once more that it was a strategic decision and not a speculative one. It provided us with a platform to align the businesses of Tech Mahindra and Satyam.
What was your gut feeling? Did you feel you would get it?
No. We thought L&T would be the winner. I thought they would be more aggressive.
What is the process you went through before Satyam acquisition?
There is a misplaced notion that independent directors are merely decorative and that they don’t do anything for the company they are associated with. Forgive me for saying so, but I think those who criticise the functioning of independent directors do not understand how a business runs. In the Satyam deal, we followed a certain process.
The senior management of M&M and Tech Mahindra first got together to look at Satyam. They then came out with a business plan on potential challenges, opportunities, etc. This was followed by a presentation to the M&M board 5-6 days before the bid. The boards of M&M and Tech Mahindra were led by independent directors. Of the 12-member M&M board, eight are independent directors, which meant that all discussions were led and guided by them.
HDFC chairman Deepak Parekh, who is an M&M director, did not join these meetings, since he is also on the Satyam board. I would like to acknowledge the assistance rendered by independent directors to the Tech Mahindra board on the guiding principle to bid for Satyam. Curiously, there was a complete convergence of views between the two boards. The decision to bid was taken after that. We are aware that like any other business opportunity, Satyam also has its own set of risks.
There were uncertainties around Satyam…
I would rather say there were whole lot of uncertainties around Satyam. For example, the class-action suits in the US were a big area of uncertainty. But if you look at the history of some class-action suits, you would know the settlement has taken place at 5 cents or 10 cents (over a dollar) over the years. Another big risk is that you don’t know what Satyam’s balance sheet looks like. But we felt this was a great company with a good reputation with its clients coupled with an excellent workforce. What has happened with Satyam is very unfortunate. Mr Raju has built a great company.
So, it will be a challenge to put Satyam back on track…
Of course, it’s a big challenge. But in life, this kind of deal never comes cheap, and you have to accept the challenge. We also have our strengths. Look at Tech Mahindra’s ability to raise funds needed for the transaction. It raised Rs 2,500 crore on its own. One could possibly say that Tech Mahindra has no expertise in the verticals that Satyam operates in, which is not completely true. Three senior people at Tech Mahindra, who were with HCL Technologies, have had experience in all these verticals.
Next year is expected to be tough for all IT companies, including the Tech Mahindra-Satyam combine. What are your thoughts?
We are aware of that. I think Tech Mahindra’s first task will be to re-establish contact with Satyam’s clients. They have lost some clients since the episode broke. The other important task will be to contact workers.
You said Tech Mahindra was formed to get into telephony which did not happen. Do you ever regret that?
Yes I do. The problem then was that the government did not welcome any private investment in this sector. Our fear was that the fund requirement was too huge for us to manage.
But starting early ’90s, when the sector was opened up, did you consider entering it?
Yes we did. But our partner BT was not very keen. That’s alright. You can’t have everything in life.
Telecom is a missed opportunity…
Like that, we might have lost a lot of opportunities during the licence raj, as the government wanted us to play the game differently which I refused to do. Our plan to set up ventures with Renault, Peugeot; acquisition of business of 3M in India and Singer sewing machine did not fructify because of the absence of government approvals.
Of late, we have seen some Indian promoters snapping ties with their foreign partners. But you have been working with BT for so long…
I see two reasons for Indian companies parting ways with their foreign partners. One is that the foreign firms now want majority control. We do not have any such issue with BT, but we had this problem with Otis. We had a 35% stake in the JV while Otis had 40%. Later, they wanted a 51%-plus control. We told them: “Fine, we don’t want to continue. It was a wonderful partnership with you guys for 45 years.”
So, we sold them the whole lot. Their intention was to scale their holding to 90% and delist, which they did. That was one reason. The second is the conflict of interest between the partners. The world has changed. The foreign partner’s holding is no longer capped at 40% after the economy was opened in 1991. We opposed it. We told the government, “don’t open up, it will kill us”. But I think the best thing that happened to business was that competition came. It changed the whole nature of business.
The Bombay Club, of which you were a member, strongly opposed competition…
There was no such club. It was all media hype. We met only once to discuss what was happening. And you know where the leak came from — the waiters. We were never against government policy. We said yes to the government to go ahead but asked for time. You can’t suddenly open up the economy. And don’t forget the rules and regulations were such that you could not grow.
In the end, you managed to survive and grow.
Of course. It also woke us up. As a result, we have survived and grown.
But there is no single trend. Some failed as well.
The one who first went out was Aditya Birla before the economy opened up. He did a superb job. I would say that some of the Indian companies failed because they did not realise the growing need for innovation and technology. Our tractor division is a good example of technological innovation. All our technologies are indigenous and we control a 45% share of the market.
Source: Economic Times