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Oh brother: Anil and Mukesh Ambani have barely spoken to one another since their father died in 2002 |
The alliance would have been ground-breaking, creating one of the world’s most powerful emerging market telecoms firms, with a market cap of $56 billion as of July 25 and boasting 115 million subscribers across Africa, the Middle East and South Asia.
Alas it was not to be. To Anil’s frustration, his deal was scuppered: not because of poor organization or a lack of corporate flexibility, nor weak government lobbying or a paucity of hard cash – he had all of them in spades – but because of the intervention of his elder and (only slightly) richer brother, Mukesh.
The fallout has been vicious and acrimonious, and raises questions about the ability of RelCom to make hefty overseas acquisitions, not to mention the viability and reputation of India Inc. "It’s unpalatable," says a Mumbai-based banker who knows both brothers. "However you look at it, it’s unseemly, and it’s bad for India’s image as an up-and-coming country."
First refusal
Mukesh had long threatened to torpedo any big cross-border deal by RelCom. He argued that when Reliance Group was split between him and Anil in January 2006 – handing RelCom to the younger Ambani – the agreement included a clause allowing Mukesh first right of refusal over any cross-border transaction.
The on again-off again deal has been confused and chaotic. First, Anil tried to engineer a deal by taking a smaller stake in a completed MTN-RelCom merger. That was batted back by Mukesh, who expressed his distaste for RelCom ending up in the hands of a foreign corporation.
Anil came back with a second offer, leaning on $10 billion to $11 billion in financing from global private equity firms and Middle East-based sovereign wealth funds to create a special purpose vehicle to house a new entity incorporating the two firms. The vehicle would be 51% owned by RelCom and its partners and – to placate South African regulators – would be headquartered and listed in Johannesburg.
Again though, Mukesh vetoed the deal and MTN, fearing the litigious punch packed by Mukesh’s wallet, withdrew, wondering perhaps at the behaviour of the bickering Ambani boys.
The feud stretches back years. Mukesh and Anil never got on. Anil, always the flamboyant one with a head for numbers, was long seen as heir apparent to the Reliance throne. But after the more steady-as-she-goes Mukesh in the 1990s succeeded in getting the vast Jamnagar oil refinery in the northwest of the country up and running, on time and to budget – rare feats in India – he moved ahead in the pecking order. Since their father Dhirubhai passed away in 2002, the two brothers have barely spoken to one another.
But the collapse of the deal takes the feud to a whole new, global level. The two aren’t boys any more: Forbes’ 2008 rich list makes Mukesh the world’s fifth-wealthiest man, with a $43 billion fortune. Anil is a single place back and a billion dollars poorer. Therein, say analysts, lies the reason why Mukesh pulled the plug on the deal: because it would have added $10 billion or more to Anil’s fortune, pushing him ahead in the wealth rankings and pricking the elder Ambani’s ego.
"This is mostly about Mukesh stopping his brother from being the number one richest man in India – it’s as simple as that," claims Bhavesh Shah, vice-president of research at Mumbai-based brokerage Asit C Mehta. Shah believes Mukesh is also wreaking revenge on Anil for dragging him into court in a spat over industrial gas prices. The Anil Ambani-controlled Reliance Natural Resources (RNRL) has long complained that Mukesh backtracked on an agreement to supply RNRL with gas at a set price, and the case is sluggishly making its way through the Bombay High Court.
"Of course it’s childish, but that’s the way the two have done business ever since Dhirubhai expired," says Shah. "Mukesh is simply doing a tit-for-tat exchange. He’s saying: ‘I will do to you exactly what you did to me’" – that is, drag his brother into court.
Share price silver lining
There are silver linings if one looks hard enough. In the three days after RelCom’s deal was formally shuttered, its Mumbai-listed stock jumped more than 20% – ironically allowing Anil’s personal wealth to inch, however briefly, above Mukesh’s. Some analysts believe that Anil should now focus on building out his domestic telecommunications structure. Mumbai brokerage Prabhudas Lilladher in its most recent note on RelCom, dated May 14, placed a buy rating on a stock that it says is "in a sweet spot", and tipped its shares to break back through the Rs700 ($16.60) level.
Alternatively, there are plenty of other viable takeover targets, notably Egypt’s Orascom Telecom, another emerging markets player; MTS, run by Russian oligarch Vladimir Yevtushenkov; and the Nasdaq-listed emerging markets player Millicom, whose own deal to tie up with China Mobile fell through in 2006.
Anil Ambani could attempt to buy any of those. Then again, with big brother looking over his shoulder, pre-empting and preventing any major deal he pursues, perhaps it’s best to lie low for a while. All in all, it’s another strange twist to a strange feud that is making India Inc, at least for now, a very strange place indeed.