Reliance and MTN - a failed merger

A lost connection

The collapse of Reliance Communications’ merger talks with MTN raises India’s biggest family feud to a dangerous level

UNTIL recently, the longstanding and vicious feud between the Ambani brothers, Mukesh and Anil, had not done them or India much harm. When their mother divided their inheritance, Reliance, India’s biggest conglomerate, between them in 2005, its market capitalisation was $22.5 billion. The resulting offspring, Mukesh’s Reliance Industries (RIL) and Anil’s Reliance Anil Dhirubhai Ambani Group (RADAG) now have a combined valuation of over $170 billion. Forbes rated the feuding pair as the world’s fifth (Mukesh) and sixth (Anil) richest men.
EPA In happier (and poorer) times

But the dispute now seems to have entered a more destructive phase. On July 18th MTN, a South African mobile-phone operator, pulled out of merger talks with Anil’s Reliance Communications (RCOM), India’s second-biggest mobile operator. MTN blamed “legal and regulatory issues”, an apparent reference to Mukesh’s efforts to prevent the deal. Anil had proposed to trade most of his 66% stake in RCOM to become the largest shareholder in MTN. But Mukesh claimed that he had right of first refusal over Anil’s stake. RCOM said that claim was “untenable, baseless and misconceived”. But the damage was done.

The separation of Reliance left Mukesh, the elder brother, in control of its petrochemical, oil and gas, refining and manufacturing divisions. Anil got a smaller portion, including ventures in telecoms, financial services and power. The brothers agreed not to compete against each other. Their subsequent success, driven not least, it is said, by the desire to outdo one another, has been staggering.

Each brother, meanwhile, has accused the other of repeated attempts to spoil his business. The biggest row centres on gas. Under the terms of their divorce, RIL was to supply gas pumped from the huge field it presides over in the Krishna-Godavari basin, off India’s eastern coast, to RADAG’s Reliance Natural Resources (RNR) at a fixed price. But the petroleum ministry, which wants Anil’s company to pay a higher rate for the promised gas, has overturned the arrangement. RIL naturally welcomed this. RNR is contesting it in court.

There have been many more clashes. Anil’s Reliance Power has challenged Mukesh’s plans to build his own power plants. Anil’s advisers also suspect their counterparts in RIL of shorting RADAG shares. This, they claim, contributed to the embarrassment of Reliance Power’s initial public offering, the biggest in Indian history: the share price fell by 17% on the first day of trading. Mukesh’s camp has accused RADAG, among other sins, of making an unrealistically low bid to build a 22km (14-mile) sea bridge off Mumbai, purely to scupper RIL’s offer. Faced with the prospect of an interminable legal wrangle between the two groups, the state government said last month that it would build the bridge itself. This is one of several infrastructure projects that the brothers have warred over in Mumbai, where they live on separate floors of the family’s splendid apartment block.

Yet the MTN debacle is of a different order. This was by far the biggest foreign sortie attempted by either brother: it would have created a mobile giant, with 115m customers in 23 countries and estimated annual revenues of $14.4 billion. The rancorous circumstances of the deal’s demise have therefore spread far. Indeed, in a time of near-crisis for India’s government, the poison has seeped into national politics.

Anil is close to an ally of the coalition government, the Samajwadi Party, which has lobbied for policies harmful to RIL, including a ban on exports of petroleum products. Some speculate that the purpose of Mukesh’s recent and much-publicised visit to the prime minister, Manmohan Singh, was to resist these proposals. All this has made a poor advertisement for India’s corporate climate. According to a seasoned associate of the Ambani family: “If anyone wants to do business in India, he now has to ask himself: ‘Will this affect Anil? Or Mukesh? And will they get after me?’”

Some argue that the vagaries of doing business in India, as exemplified by the feud, are even putting off local investors, who have been acquiring foreign companies by the hatful. “Is there also a dark side to the global investment being made by Indian businessmen?” writes T.N. Ninan, editor of the Business Standard newspaper. “Are our best businessmen, who prefer an ethical basis to their business conduct, deciding that India is not the basket in which they want to place more of their eggs?”