Ambani brothers end war but agree to compete
| Replace all non-compete agreements with a ‘simpler pact' on gas-based power generation. |
Our Bureau
Mumbai, May 23
In a move that will change the competitive landscape between the Ambani scions Mukesh and Anil, the brothers have cancelled all existing non-compete agreements between their groups, drawn-up during the Reliance re-organisation in 2006.
A new and “simpler” non-compete agreement has instead been formalised relating only to gas-based power generation, said identical statements issued separately by the two groups on Sunday.
The agreement cancelling earlier non-compete agreements (except in the matter of gas-based power production) was signed between the Mukesh Ambani-led Reliance Industries Ltd (RIL) and Anil Ambani led-Reliance ADA Group companies on Sunday.
The new agreement opens up sectors that were hitherto out of bounds for either groups, such as telecommunications and the financial sector for the older brother Mukesh.
Gas-based power generation continues to be off-limits for RIL up to March 31, 2022. An appropriate exception has been made in respect of RIL's captive gas-based power plants, the note explained.
For younger brother Anil, the doors are now open to sectors such as oil and gas and petrochemicals.
COURT FALLOUT?
The latest development comes two weeks after the Supreme Court had ruled on the gas-pricing dispute between the two brothers. The apex court had directed the Mukesh-owned RIL and the Anil-owned RNRL to renegotiate a gas supply agreement within six weeks of the court judgement and to report the agreement to the court within eight weeks.
However, there is no clarity on whether the latest agreement between the Ambani brothers is an off-shoot of the apex court-directed negotiations and merely a precursor to a new gas sharing agreement which the Supreme Court has mandated.
The latest statement did say that RIL and Reliance Natural Resources Ltd (RNRL) will expeditiously negotiate gas supply arrangements in accordance with the orders of the Supreme Court. “We hope to conclude these negotiations very soon,” the note added.
Further, the new non-compete agreement will eliminate the possibility for further disputes between the two groups, “on matters relating to the scope and interpretation of the non-compete obligations,” the note added.
The agreement has removed road blocks for each of the two groups to expand in new areas, an industry-watcher agreed, adding however, that it may be too early to say if RIL would be interested in any of the areas where ADAG is already present.
In the past, the two brothers have fought over Mr Anil Ambani's efforts to acquire South African telecom company MTN and more recently, over the gas supply arrangement between Mr Mukesh Ambani's RIL and Mr Anil Ambani's Reliance Natural Resources Ltd.
A few years ago, there was another public spat when Mr Anil Ambani protested against a 2,000-MW captive plant that was proposed for the RIL-promoted Haryana Special Economic Zone. He had then cited violation of the non-compete agreement between them, while the RIL camp held that the plant was only incidental to the SEZ business. RIL has a captive power plant at its new refinery in Jamnagar too.
POWER: Truce or war?
After Dhirubhai Ambani's death in 2002, his empire was re-organised between the warring Ambani scions under the stewardship of their mother Ms Kokilaben, in June 2005.
But industry watchers differ in their interpretation of the latest development, calling it variously as “a road to a truce”, and an “out-and-out war”, or a “total severing of relations”.
Some felt that there would be greater consolidation activity between the groups. “There are certain indications that point to M&A activities between the two groups, especially with Mr Mukesh Ambani showing keen interest in the telecom sector,” said Mr Kishor P. Ostwal, head of CNI Research.
Others, however, felt this was unlikely. “We think it is out-and-out no-holds barred war. It's a you-do-what-you-like, I'll-do-what-I-like situation. Only in the case of gas they are forced to have an agreement,” said another analyst.
“The settlement is positive for both the groups But what will be more interesting is when they announce the monetary component of the deal. The ADAG group especially is dry of money,” said Mr Harjit Singh Sethi, Country Head, Institutional Equity Broking at Almondz Global Securities.
There was much speculation on whether Mr Anil Ambani has conceded more, as it is easier for Mr Mukesh Ambani to enter telecom, finance (in particular) and non-gas based power, than it is for the former to enter a capital intensive industry such as refining or exploration.
The press statements from the two brothers, though, had reconciliatory overtones.
“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 shareholder value for shareholders of both groups,” the note said.
The boards of directors of both RIL and Reliance ADA Group companies have given their green signal to the latest agreement.
India's billionaire Ambani brothers took a step towards reconciliation of their long-running feud on Sunday, ending non-compete agreements in a step they hoped would lead to cooperation between the two groups.
Both groups said they hoped to reach a conclusion soon in a gas supply agreement between Reliance Industries (RIL) and Anil's Reliance Natural Resources that had been at the heart of their dispute.
"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 shareholder value for shareholders of both groups," both companies said in statements.
The announcement comes weeks after the Supreme Court ruled in Mukesh Ambani's favour in a bitter dispute over gas pricing that had made headlines, riven India's richest family and raised questions about the influence of big business on government policy.
On Sunday, Reliance Industries and Anil's Reliance ADA Group said they had agreed to cancel all existing non-compete pacts which the groups had signed in 2006 and entered into a new and simpler non-compete pact only for gas-based power generation.
"If you weigh the positives and negatives, this is more positive for Reliance Industries than R-ADAG group, because this gives Reliance an opportunity to look into expansion in other areas, which they were not allowed to do earlier," said S.P. Tulsian, an independent investment consultant.
"You can't rule out the possibility of Reliance entering in sectors such as telecom," adding the Reliance shares are expected to open up on Monday, in the wake of this development.
The two brothers, who both live in Mumbai but had not been on speaking terms during their dispute, inherited their business empires from their father Dhirubhai Ambani in 2005.
Mukesh got the jewel - Reliance Industries, which has interests in oil and gas exploration, petrochemicals, infrastructure and textiles. Anil got the telecoms, power and financial services businesses.
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