The battle to be India's No. 1 - the bidder and the spoiler

Friday, 27 June 2008, 13:03 Hrs
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Mumbai/Johannesburg: One month into formal consolidation talks between Reliance Communications and South African telecom giant MTN, the estranged Ambani brothers have got into another round of power play - one keen to get the deal through and the other using his all his muscle to thwart the attempt to create the world's seventh largest mobile phone entity.

Last week, Mukesh Ambani, who controls India's largest private sector company, Reliance Industries Ltd (RIL), and his trusted aide and friend for decades Anand Jain, spent significant amount of time in Johannesburg, meeting key officials in President Thabo Mbeki's government.

Their visit coincided with a crucial annual general meeting in the same city of MTN, whose potential merger with Anil Ambani-controlled Reliance Communications (R-Com) re-ignited the simmering tensions between the two brothers. Both MTN and R-Com had announced May 26 that they had entered into consolidation talks and that they would hold exclusive negotiations for 45 days.

Little emerged from the Ambani meeting as Mbeki's confidants refused to be drawn into what they called was an traditional Indian business family affair. But MTN chairman Cyril Ramaphosa played his cards safely.

He restricted the AGM to a 30-minute affair and remained silent on the talks with R-Com. For that matter, he also did not raise the issue of the letter sent by elder brother Mukesh Ambani's RIL that threatened to block the planned consolidation, claiming a right of first refusal for the shares of R-Com, should they be sold.

Nevertheless, corporate watchers say that central to the deal is the crucial issue of current and potential future revenues of the two warring brothers - more specifically, which group has higher turnover.

The two rival groups - the Reliance Industries group and the Reliance Anil Dhirubhai Ambani Group (R-ADAG), once controlled by Reliance - were carved out after a bitterly fought battle between the two brothers over the empire created by their legendary father Dhirubhai Ambani.

For Anil Ambani, the proposed deal with MTN is his grandest ever, to create the world's seventh largest mobile phone company with 115 million subscribers spanning Africa, the Middle East and India and joint control over an entity that has an earnings forecast of $10 billion in 2009.

The junior Ambani hopes to engineer a de facto reverse takeover between R-Com and MTN, under which he will swap most of his 66 percent stake in R-Com for a 34.9 percent stake in the combined entity.

If the deal comes through, it would then put the junior Ambani a cool $3 billion ahead of the diversified oil exploration refining, petrochemicals and retail conglomerate of his brother Mukesh and its $7 billion turnover.

It would also help Anil move ahead in the Forbes rich list where he - with fortune worth $42 billion - currently stands a tad short of Mukesh's fifth rank with a fortune of $43 billion.

No one is blinking first, but for some war of words. Mukesh Ambani is clear in his intentions: Asserting a right of first refusal over his brother's 66 percent stake in R-Com even though he showed no prior interest in making a bid. RIL says its case is based on an agreement framed in early 2006 when R-Com was being carved out of Reliance Industries.

R-Com disputes the validity of the agreement, saying it was never ratified, and has even threatened criminal proceedings against some RIL officials who were the purported signatories to the agreement.

Market analysts, familiar with the bitter rivalry between the two, are worried about the outcome of the deal, as also the legal fallout of the shadow boxing since it will have implications on all listed entities under the two brothers.

Many also wonder why the fight, again dragged into full public view, couldn't be contained within the confines of their shared Sea Wind home (both live on separate floors and have no daily contact) in Mumbai's plush Cuff Parade neighbourhood.

"There is a feeling that he (Mukesh) would rather sink the deal than get involved. If you (Anil) are fourth or fifth in the world in terms of wealth, and you are upstaging your bigger brother, it is not going to go down well," a top stock market analyst told the Johannesburg-based Business Day.

Little wonder, hectic parleying has started across Mumbai, London and Johannesburg as the brothers try to secure support in their favour. A fortnight after encouraging his confidants to gun for his brother from a game reserve in Botswana while holidayed with his family, the senior Ambani pushed his men to lobby for both moral and political support in the Indian capital.

One of his aides even briefed a top official of the Indian Prime Minister's Office over lunch in central London.

There is more to the spat. The elder Ambani, by casting doubt on his brother's unfettered right to dispose of his stake in R-Com, hopes to gain leverage in other commercial disputes, including one involving a contested gas supply contract, analysts say.

Mukesh is also aware that the proposed merger could seal the fate of the non-competition agreement between the two signed in 2006 and submitted to all statutory authorities including Bombay Stock Exchange (BSE), Securities and Exchange Board of India (SEBI) and Registrar of Companies (ROC).

That the brothers have openly violated the agreement is, however, another story.

Anil Ambani acquired gas basins under the government's New Exploration Licensing Policy, which allows private sector companies to prospect for hydrocarbons. This, thereby, made him enter a domain where his brother has dominant interest, while Mukesh's telecom and entertainment ambitions, too, are well documented.

"Expect big brother Mukesh Ambani, fuming at Anil's plans to seize control of African mobile operator MNT, to enter stage left with another attempted spoiler," said the Financial Times, adding their feud, with daggers drawn, could make another passable Bollywood movie.

The younger brother, however, continues to look for support from his mother Kokilaben, who was by his side when Anil recently co-hosted a dinner in London with Barclays chairman Marcus Agius for more than a hundred guests, including MTN chief executive Phuthuma Nhleko.

Corporate watchers have already taken it as an indication of the mother's tacit support to the ambitions of the younger son. And that she shocked everybody by visiting family friends in the US and skipped the elder son-controlled RIL's recent annual general meeting is seen as an indication that Kokilaben is tired of the renewed slugfest.

No one knows whether she will eventually come out in the open - like she did in 2006 for the first time after the death of her husband in July 2, 2002 - and intervene to silence corporate India's worst, bitter battle between the brothers over a single issue: Who will be Number One.
Source: IANS
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