Posted by: John Elliott | May 24, 2010

The Ambani brothers’ cold war is over, let battle commence

Anyone who thinks that Sunday’s announcement of a so-called peace deal between India’s warring Ambani brothers, Mukesh and Anil, signals a family love-in must surely be mistaken.

The two extremely high profile businessmen split the massive Reliance Industries empire in 2005, three years after the death of their father Dhirubhai who originally founded what had become one of India’s biggest groups. They have been fighting each other ever since – until Sunday’s apparent truce.

Anil (left) and Mukesh, tense in 2006, with their father's picture

Now their rivalry can move openly into the marketplace because the gist of Sunday’s announcement was that they have cancelled non-compete agreements reached after their 2005 split.

These agreements, instead of keeping the brothers peacefully apart, led to many squabbles and bitter infighting. The worst upset was when Mukesh scuppered Anil’s plans two years ago for a share-swap merger with MTN, a large African telecoms company, saying he had first right to shares in Anil’s Reliance Communications.

The incentive for the brothers to sort out their troubles was a Supreme Court judgement earlier this month on a dispute over the supply and price of gas from one of Mukesh’s Reliance Industries (RIL) offshore fields to a power plant planned by one of Anil’s Reliance ADAG companies. The judgement favoured RIL on the price of gas and on its freedom to choose its customers, but also said a quick agreement should be reached by the brothers that would also protect the interests of ADAG’s shareholders.

Freedom to enter each other’s business areas will of course lead not only to visible competition but also no doubt to a continuation of the ruthless behind-the-scene influence seeking and peddling for which they are both renowned (as was their father). That could also hit other companies in areas that they target.

The two groups said on Sunday that the announcement would “provide enhanced operational and financial flexibility to both groups, and greater ability to participate in high growth sectors of the Indian economy, such as oil and gas, petrochemicals, telecommunications, power, and financial services”. There was an added line about RIL not entering into ADAG’s key area of gas based power generation until 2022.

Mukesh Ambani’s most successful business areas are oil and gas exploration and refining, textiles, and petro chemicals. He has been less successful with retail stores, petroleum retailing, and special economic zones, but all these businesses have growth potential, along with life sciences, and an investment in one of the controversial IPL cricket league teams. He has ample investment funds, and will almost certainly want to move into highly lucrative financial services plus infrastructure, media (where he is already active), and maybe telecoms.

Anil has had most success in financial services, where he has a $24bn mutual fund, India’s largest, but is facing tough competition in his other main area, telecoms that was originally started by Mukesh. He also has substantial plans in infrastructure, power, media, films, and healthcare, and might look at moving into oil exploration, which he was personally involved in before the split, and retail.

The eventual winner will be almost certainly be Mukesh, 53, who has more business acumen, managerial expertise, and political clout, and is more of a strategist, than Anil, 50. He has a head start because the $70bn-plus market capitalisation of his RIL group is three times the size of Anil’s ADAG.

Saturday’s statement said the two brothers were “hopeful and confident that all these steps will create an overall environment of harmony, co-operation and collaboration between the two groups”.

Maybe I’m being too cynical, but I don’t see that happening, though future clashes will probably not invade government policy as damagingly as they did over gas pricing.

Mukesh is never content unless he dominates whatever he is involved in, especially his core industries. On a personal level, Anil is part of his core family, so there is no way that Mukesh and his wife Nita would ever allow Anil to gain precedence. As the younger brother, Anil is of course always trying to be a player in the same big league.

Like so much in India, this is good theatre, and the country also benefits if corporate rivalry leads to two able entrepreneurs building empires faster than might otherwise happen.

But there is downside because the brothers’ extremely active political lobbying can upset the development of government policy. One senior civil servant said to me recently. “People are scared to take policy decisions because they might upset one of the brothers which will bring misery when they move against you”.


Responses

  1. […] The two brothers split the Reliance group in 2005, three years after the death of Dhirubhai Ambani, their father and the group’s founder, who combined entrepreneurial brilliance with deft handling of government relationships. They had a long and bitter row that was led by Anil, who felt he was being elbowed out of his share of the combined business. The row continued after the split, mainly over gas from fields controlled by Mukesh Ambani, and was only settled last year. […]

  2. The financial markets will hail the “Elliott” put!


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: