Saturday, March 26, 2011

Mindtree's Soota: Won't Sell Stake Now

Bangalore--MindTree Ltd's outgoing chairman and co-founder, Ashok Soota, said he would sell his stake in the Indian software company in "due course of time" but without impacting its operations.

"I have no immediate plans for the divestment of my stake in MindTree," Soota said in a joint statement with the company.

Soota, one of nine co-founders of MindTree, held an 11.1% stake in the company as of Dec. 31.

MindTree's chief executive and managing director, Krishnakumar Natarajan, said the joint clarification seeks to put to rest market speculation over any stake sale by Soota having any impact on the company's business.

Soota had on Jan. 28 announced his decision to step down from the role of executive chairman, citing personal reasons, in a press statement. MindTree's board accepted his resignation, effective March 31, three days later.

Analysts say the resignation was "seemingly abrupt" and indicated a discord between him and the management. Investors have been jittery, too. The company's stock has fallen nearly 30% since the resignation was announced.

MindTree's shares closed flat at 360.95 rupees on Thursday on the Bombay Stock Exchange, underperforming a 0.8% rise in the benchmark Sensex. At Thursday's closing price, Soota's stake is valued at I.60 billion rupees ($35.75 million).

The clarification comes at a time when the company is hit by a series of setbacks in its products business, which accounts for about 40% of its total revenue, including a failed investment and one large client pulling out.

The company's overall financial performance over the past several quarters has been stressed partly due to the slower pace of recovery from the global economic meltdown and as an investment into manufacturing handsets and telecom infrastructure products went sour.

MindTree had bought the local unit of U.S.-based Kyocera Wireless Corp. in 2009 to venture into the handset business. It invested $4.5 million during April-September 2010 to develop the products. But it later exited the business because it wasn't able to afford any additional capital spending.

The company was also forced to take a $3.7 million one-time charge to restructure the business into a wireless design services unit, which continued to service the U.S.-based company. However, earlier this month, the company lost business from Kyocera Wireless, leading to a revenue loss of more than $3 million in the January-March quarter of 2011.

Despite the setbacks, in an interview with Dow Jones Newswires earlier this week, MindTree CEO Natarajan said he remains confident of growth picking up in the next fiscal year starting April 1.

"We are confident that if Soota enters into areas competing with MindTree and some MindTree employees were to join him, the start-up operation would have no material impact on MindTree's business," Natarajan said in the joint statement.

Soota said he plans to use the proceeds of the stake sale toward funding his new non-profit organization and a new business venture, which he will announce soon.


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