Brotherly love

Ambanis: Can brotherly love buy you money? The reconciliation between Indian billionaires Mukesh and Anil Ambani has boosted stocks of several of the companies they control. But while the rapprochement will save them stress and legal fees, friendly relations probably won’t add much long-term value. There is some scope for joint ventures between the two brothers’ conglomerates - respectively, Reliance Industries and Anil Dhirubhai Ambani Group (ADAG). But these are minor. Meanwhile merging the groups, reversing the break-up of 2005, makes little economic sense given the current form of their holdings.

The original Reliance conglomerate, founded in 1966 by the Ambanis’ father, Dhirubhai Ambani, diversified widely during its rapid growth, using cash-positive units to fund new ventures and diversification. That’s normal in an emerging market where capital is scarce. As with the Korean chaebol business groups, for instance, this approach can be the best way to finance rapid diversification and growth in such economies.

However by the time Ambani père died in 2002, Reliance was so large and capital so readily available in India that the division of the conglomerate between his two sons in 2005 did not impede further growth. Reliance Industries has been publicly quoted since 1977, as are several of both its subsidiaries and ADAG’s. Given the global appeal of good Indian corporate assets and the two groups’ strong track records, capital availability is no longer a problem. Thus the end of the brothers’ feud is less important than it may seem, at least in a business sense. Sure, ADAG subsidiary Reliance Communications was prevented from merging with the South African cellphone conglomerate MTN in 2008 because Reliance Industries was able to block the deal.

In general, though, the two groups’ businesses are now sufficiently different that neither clashes nor joint ventures — nor even the highly unlikely recombination of the two — are likely to add that much value. If anything, both brothers may eventually find that the way to add most to shareholder value is by selling units and focusing their businesses. At least now they won’t be distracted by their former feud.