Ambani brothers break the ice

RIL, ADAG cancel 2006 non-compete agreements, hope to work in harmony.

It took a gentle nudge from the Supreme Court earlier this month to signal an end to the most publicised corporate war in India. Five years after going public with “ownership issues” and more in India’s richest family, the Ambani brothers today took a big step towards reconciliation of their feud that had made headlines and dragged in several government functionaries.

In separate statements, Mukesh Ambani-led Reliance Industries (RIL) and the Anil Ambani-led Reliance ADA Group announced the two groups had cancelled all non-compete agreements — a step they hoped would lead to cooperation between them. The non-compete pacts were signed in 2006.

As a goodwill gesture, RIL said it would not enter the gas-based power generation arena till 2022, for which the two sides would enter a separate agreement.

Both groups also said they hoped to reach a conclusion soon on the gas supply agreement between RIL and Reliance Natural Resources (RNRL), at the heart of their dispute. The earlier agreement, taken to court, between the two brothers concerned the price, quantity and tenure of gas supplies by RIL. It called for 28 million units of gas a day to be sold to RNRL at $2.34 per unit for 17 years.

The announcement comes weeks after the Supreme Court ruled in Mukesh Ambani’s favour in the dispute over gas pricing and asked the two brothers to renegotiate their gas agreement within the frame work of government policies and prices.

“RIL and Reliance ADA Group are hopeful and confident that all these steps will create an overall environment of harmony, co-operation and collaboration between the two groups, thereby further enhancing overall value for shareholders of both groups,” both the groups said.
 

BUSINESS INTERESTS
ANIL AMBANI	MUKESH AMBANI
* Financial services	* Oil, gas, petrochemicals
* Telecom	* Textile
* Infrastructure	* Retail
* Media & DTH	* SEZs, ports & gas terminals
* Power	* Life sciences & biotechnology
* Healthcare	* IPL
*Combined mkt cap Rs 1,08,792 cr (*as on May 21, 2010)	*Combined mkt cap Rs 3,26,717 cr
POSSIBLE OVERLAPS IN FUTURE
* Telecom
* Financial services
* Power (non-gas)
* Infrastructure
* Media & Entertainment

Sources familiar with the development said the agreement, approved by the boards of both the companies, came after long discussions between the two brothers separately, but spokespersons of either did not confirm this.

The announcement to break the ice also came within days of Anil Ambani meeting Prime Minister Manmohan Singh and top cabinet ministers. His elder brother also did the same within a few days. It is reliably learnt the prime minister had repeatedly advised the two brothers to sort out their differences “in national interest”. When the younger Ambani sought his intervention, the prime minister reportedly told the brothers they should seek their mother’s advise and sort out differences.

The statements said “the cancellation of the existing non-compete agreement will provide enhanced operational and financial flexibility to both groups and greater ability to participate in high growth sectors such as oil and gas, petrochemical, telecom, power and financial services”.

RIL said these developments will eliminate any room for further disputes between the two groups, on matters relating to the scope and interpretation of the non-compete obligations.

This means RIL will now be also able to enter into growth sectors such as telecommunications and financial services, among others. Sources close to the development explained the agreement had been signed to allow younger brother Anil Ambani’s telecommunication business to grow.

“The agreement has been signed to help the younger brother’s business to grow. Also, RIL thinks there are growth sectors like finance, which RIL might want to get into in future,” said a source.

According to the settlement reached between the two brothers in 2006, Mukesh got the jewel, Reliance Industries, which has interests in oil and gas exploration, petrochemicals, infrastructure and textiles. Anil got the telecom, power and financial services businesses.

The non-compete pact was one reason why Reliance Communications (RCom), ADAG company, had to call off merger talks with South Africa’s MTN group, after RIL threatened to block the sale if it wasn’t given the first option to buy shares in RCom.

Meanwhile, S P Tulsian, an independent investment consultant, said this was more positive for RIL than R-ADAG, because this gives the former an opportunity to look into expansion in other areas, which they were not allowed to do earlier.

“You can’t rule out the possibility of Reliance entering in sectors such as telecom,” he said, adding Reliance shares were expected to open up on Monday.