It may not be too off the mark to say that disagreements have cost the Patni brothers dear. Three decades ago a difference of opinion between one of the brothers and a man named N R Narayana Murthy cost the company a small but crucial team load of young engineers who left the firm together (in arguably one of the first so called ‘team exits’ in corporate India). Murthy of course went on to create Infosys. Today the stock owned by Murthys in Infosys is valued 40% more than the total market cap of Patni Computer Systems.
Over the last few years, disagreement of a different kind has stopped the promoters from giving up the reins of the firm so that it can move on to a new trajectory. The three Patni brothers have had different ideas whether to sell and at what price for over three years now. While eldest of the three IITian brothers Gajendra Patni and the youngest sibling Ashok Patni wanted to cash out, Narendra Patni had different ideas.
This cost an impending deal in 2007. After deciding to sell out their entire 14% stake each along with General Atlantic Partners’ 16%, Gajendra and Ashok Patni reportedly were willing to sell only part of their holding. Apax Partners, that was said to be in talks to buy the 44% stake that time, backed out of the transaction. Even General Atlantic was said to be in two minds whether to go ahead with an exit.
The market value of Patni has never reached the peak it scaled in 2007 when the stock went up to Rs 624 and at a deal value of Rs 503.5 is at least 20% less than what it could have sealed three years ago. Even if the deal would have been sealed at around the same level as now back then, the loss is in the opportunity cost of having cashed out in 2007.
All this was going on at a time when Narendra, the MIT graduate, was believed to be a stumbling block as he insisted on staying back in the company and could have invoked his first right of refusal to buy the stake held by his brothers. (In the 60s, while Gajendra has a B-Tech in chemical engineering (IIT-Delhi), Ashok has a B-Tech in mechanical field (IIT-Powai) and Narendra got himself as B-Tech in electrical engineering (Roorkee) and went on to complete M-Tech from MIT followed with a business degree from Sloan School of Management).
Then came the crash that swept away any immediate plans for stake sale at low valuations. Last year, murmurs of a stake sale began again and much had changed since 2007. Narendra had stepped down as the CEO of the firm giving way to a professional chief executive in the form of Jeya Kumar (former CEO of Mphasis) and valuations were reviving after a poor 2008.
The deal announced today also means Narendra Patni saying a hard good bye to a firm he co-founded with his two brothers back in 1978. Many consider him the real brain behind the company and in many ways the real doyen of India’s Offshoring Industry.
The man, who is said to have a weakness for red wine and BMW cars, started what was probably the first offshoring work through his firm Data Conversion Inc way back in 1972, before any of the top IT firms started their business (Wipro was then a oil company and TCS though founded a few years ago started offshoring only in 1974). This firm got handwritten data into the magnetic format primarily based out of its Pune office and catered to various organisations in the US including American Film Institute.
Narendra or Naren as many call him, who had earlier worked with Forrester Consulting Group besides US Trust Company of New York and as a consultant to Arthur D. Little, Inc, joined hands with his brothers and formed Patni in 1978. In the initial years it was engaged in computer time rental, resale of imported computer hardware besides the alliance with Data General Corp for computer hardware systems. The rest is history.
While his brothers were also closely involved, Narendra ran the show at Patni. However, differences peaked in 2007 when Gajendra and Ashok decided to move out and venture into other businesses.
Rumour mills also had it that Narendra was keen to keep his executive position to ultimately give the reins of the company to his son Anirudh Patni who was already in a senior executive role in the software services company. Some even speculated that the other two brothers teamed up with General Atlantic not to renew the CEO’s role of Narendra that expired in December and thereby roping in an outsider to lead the company. Jeya Kumar’s appointment in many ways sealed the fate of what was to happen eventually even as Narendra remained as an executive chairman all this while.