Who wins now?

When elephants fight, goes the adage, the grass suffers. When the Ambani brothers do battle, one is tempted to add, it’s impossible to determine who is winning. Just when you think the advantage is with one of them, a few thrusts and parries later, it swings to the other. Consider: In the first week of July, when the spotlight was centred on Amar Singh, Secretary General of the Samajwadi Party (SP) and the king maker on whom the fate of the United Progressive Alliance (UPA) depended, the pendulum appeared to have swung in favour of younger brother Anil.

Singh, after all, had come out with all guns blazing in an attempt to coax the government to introduce policy proposals that didn’t seem to be doing Mukesh, Chairman of Reliance Industries (RIL), any favours. A proposal to introduce a windfall profit tax on private petroleum companies (like RIL) and another to scrap the export-oriented unit (EOU) status of such private refineries were just two potential roadblocks to the till-now-relentless progress of the RIL juggernaut.

The elder Ambani appeared to have been pushed on the back foot. Not for long. A few days later, on July 17 RIL appointed an arbitrator to settle a dispute with Anil’s Reliance Communications (R-Comm), which was seeking to cut a merger deal with South African telecom giant MTN. The Mukesh camp did not favour this transaction as it felt that R-Comm should first allow RIL the right of first refusal before venturing to swap equity with another player.

A day after the arbitrator’s appointment came an announcement that R-Comm and MTN had mutually decided to call off the deal. Suddenly it was advantage Mukesh. But at the time of writing, it seemed the play for MTN was far from over, with the Anil camp hinting that it has enough legal remedies in its armoury.

For observers following the Ambani vs Ambani slugfest over the past four years now, last fortnight would appear to be just another day in the arena for the two billionaire gladiators. The MTN saga was just a sideshow to the tug of war at the Centre as the UPA government attempted to stay afloat. As Amar Singh appeared to be keen to push through policies that apparently favoured Anil, in exchange for promising the SP’s support to the UPA (in place of the Left parties that had pulled out), Mukesh was quick to react by meeting up with Prime Minister Manmohan Singh.

As an old Ambani hand points out: “When your companies’ revenues add up to 5 per cent of the gross domestic product of the country, you tend to have your people everywhere, in every party. And, like political parties, businessmen also issue their own whips to parliamentarians who are aligned with them.” That also means you need to have a say in every fight that is being fought.

What’s at stake for the brothers For Anil The Dadri power project in Uttar Pradesh could become a reality if it gets the required supply of gas from Reliance blocks in the K-G basin. A favourable minister at the helm of the Ministry of Petroleum and Natural Gas could help Can hope for additional GSM spectrum for his telecom ventures; would help if companies like Bharti and Vodafone have to pay more for spectrum that they are holding in excess of 6.2 MHz An increase in the limit on foreign direct investment in the insurance sector from 26 per cent to 49 per cent will come as a shot in the arm For Mukesh Freedom from the compulsion to offer 40 MMSCMD of its gas production from K-G basin to Anil's companies Allowing foreign direct investment in organised retailing will enable him to de-risk his retail venture Escape the sudden prospect of windfall tax that has been brought up by Amar Singh to tax companies that may benefit from high oil prices

It would appear as if the Mukesh camp did enough to keep MTN away. As one insider in the Anil camp asks: “Will you buy a house if a neighbour claims he has some rights over it?” Yet, RIL’s intervention may not be the only reason for the transaction falling through. A bigger factor could simply be that a deal just wasn’t workable. A few days before the exclusivity period for negotiations (which had been extended once) was to end, the Anil camp seemed to realise that the odds were against an acquisition taking place. RComm had no way of directly acquiring 51 per cent in MTN— even reaching 35 per cent would have been a problem.

Amar Singh: Man in the middle

Information also trickled in that the Mikati family of Lebanon probably controlled more than 10 per cent in MTN through other entities. Najib Mikati is a former prime minister who could be prime minister again.

And MTN chairman Cyril Ramaphosa could be the next president of South Africa. Such heavyweight negotiators on one side may have been one reason for R-Comm to bow out of the talks. The Anil camp didn’t waste the opportunity to come down heavily on the rival camp when it announced that it would initiate arbitration proceedings—RIL was tarnishing India’s image in foreign eyes, it thundered. There may be some truth in that statement, although it’s difficult to pinpoint the blame just on anyone of the brothers.

As one battle-weary veteran at one of the camps says: “This looks like an endless war now, which is not doing anyone any good. Instead of being looked upon as business leaders and community leaders, the Ambani brothers are being looked upon as people who bicker over every available issue. It will hurt every time they go for a deal with companies abroad.”

Back to the future

The brothers have enough bad history between them to last a life time. They parted ways on June 18, 2005 after signing an agreement on the day before, which was also signed by their mother and their sisters. The agreement, many say, has just one copy and is kept with mother Kokilaben D. Ambani. Is it a legal document? That’s a multi-billion dollar question to which few have an answer. The agreement divided the businesses between the two brothers. Later, RIL created a scheme of demerger, and four new companies were created and management control handed over to Anil. However, the agreement itself has got the brothers squabbling.

…and Amar Singh’s latest demands Heads should roll: Primarily those of Finance Minister P. Chidambaram, Petroleum Minister Murli Deora and RBI Governor Yaga Venugopal Reddy (He has since denied this. Said he is a friend of the FM but has some issues with Deora and Reddy) Existing telecom operators should pay more for spectrum allocations in excess of 6.2 MHz. This hurts rivals of Reliance Communication like Vodafone and Bharti. As R-Comm is largely a CDMA operator, its spectrum allocation is below that figure The first disinvestment should be that of government institutions like UTI and LIC divesting their stake in ITC. This could set the stage for cash-rich private sector promoters to get a piece of ITC Introduce windfall profit tax, which will hurt players in the petroleum sector, like Mukesh Ambani's Reliance as well as Cairn India and ONGC Don't allow foreign direct investment in the retail sector. This reduces the chances of a foreign retail giant buying into Mukesh Ambani's retail venture Keep an open mind on pension and insurance reforms.can benefit Reliance Capital

Anil’s Reliance-Anil Dhirubhai Ambani Group (R-ADAG) has written hundreds of letters to RIL, citing how the elder brother’s group is violating the June 17 agreement. RIL has written back saying that its board does not recognise any such agreement and is bound only by the scheme of demerger that had been passed by its board of directors and the shareholders and to which the Bombay High Court had given its nod on December 9, 2005. Here’s proof of that. Documents that were made available to Business Today reveal that on July 24, 2007 RIL company secretary Vinod Ambani wrote to Reliance Energy: “I have been further directed to state that the Board of Directors is neither privy to nor concerned with any family arrangement by whatever name called among the promoter family and Reliance Industries is not bound by any such arrangement or any arrangement or agreement to which it is not a party.” Harish Salve, the RIL counsel, had called the family agreement “a piece of trash” in the Bombay High Court in April this year.

It is an interesting situation where the R-ADAG side continues to refer to the agreement; and RIL writes back to say this agreement is not relevant. RIL swears by a set of agreements that was signed by it and the four companies that were being demerged on June 12, 2006.

Anil challenges these agreements, saying the manner in which they were signed was unfair as the companies were still under RIL’s control. As one insider points out: “The brothers can go on fighting. And depending on whose office you are sitting in, either side’s argument can seem logical and legally valid. Between the two agreements, it is a chicken and egg kind of a story.”Power equations

It’s against such a backdrop of unrelenting sabre-rattling that the muscle-flexing of the Ambanis in the capital takes on dangerous proportions. Government officials have denied that Mukesh had gone to meet the Prime Minister to discuss Amar Singh’s allegations; Manmohan Singh’s media adviser Sanjaya Baru had described it as a routine meeting between the Prime Minister and an industry leader. A government insider says it was “business”. “Mukesh is a businessman and someone had been railing against him quite publicly, so he went to set the record straight. RIL has been close to the UPA government and Sonia Gandhi has even used Mukesh’s private jet on some of her personal and official travels.”

Mukesh is understood to have argued against the windfall profit tax that Amar Singh has been arguing for, explaining how that would prevent the expansion of refining capacity in India.

Amar Singh’s reasons for turning the heat on the ruling UPA are clearcut, but to be sure, he isn’t the first politician to meddle in corporate rivalries. Consider, for instance, an ultra-mega power project that was originally allotted to the Lanco group, but which was eventually disqualified after certain anomalies were discovered in the bid it had submitted. However, there were quite a few parliamentarians who were separately questioning Lanco’s eligibility to bid for the project.

Lanco was disqualified and R-ADAG’s Reliance Energy, which was the next lowest bidder, was awarded the project. Another example of ministerial intervention is when Andhra Pradesh Chief Minister Y.S. Rajasekhar Reddy fought against RIL’s pricing formula for the gas from the K-G (Krishna-Godavari) basin by writing as many as 23 letters. The letters were often cited by R-ADAG in its arguments on pricing of the gas. These are not isolated cases as often letters are written by politicians addressing the Prime Minister or other authorities; a little reading between the lines can reveal possible business interests hidden in the agenda.

No reason to fret

Market men love to point out that although the brothers continue to slug it out, shareholders have little reason to complain. Says V.K. Sharma, Whole-time Director & Head of Research at Anagram Stockbroking: “I think the healthy sibling rivalry has helped the shareholders, who have seen better than market returns in their stocks.

Tomorrow’s energy? An Amar Singh-promoted hydel power company blazes a trail on Dalal Street, but not for long. As the news of the Samajwadi Party (SP) supporting the United Progressive Alliance (UPA)-led government started floating on the political streets of Delhi early this month, smart traders on Dalal Street were actively trading a little-known company called Energy Development Company (EDC), a firm that generates hydro-electricity and sets up hydro-power plants. The buying interest was so aggressive that within six trading sessions the stock price rose 50 per cent. Between July 7 and July 14, the stock price rose to Rs 150.7 from Rs 100—this was a time when the SP was aggressively negotiating with the UPA government on providing support. So, what’s so special about EDC? Nothing much really, except that its Chairman is one Amar Singh, General Secretary of the SP. Also on the board of EDC is film star Amitabh Bachchan, who holds a 3.64 per cent stake in the company. As one trader put it, the stock has been rising because of the AAA connection (you don’t need to be Einstein to figure out who is the third A). The financials of EDC aren’t unimpressive, with its growth and margins meriting a closer look. The company reported a net profit of Rs 16.33 crore for the year ended March 2008, compared to Rs 9.1 crore in the corresponding period last year. Revenues increased to Rs 65.74 crore from Rs 61.67 crore during the same period. In its annual report for 2006-07, the company has talked about a contract business, which had revenues of Rs 52 crore in that financial year; and that future focus would be on infrastructure, either as developer or contractor. A company official, who declined to be named, says EDC is in the process of setting up a hydro power project on a turnkey basis over the last two years and this has resulted in increased revenues and profits. The official adds that Ayyappa Hydro Power, a wholly-owned subsidiary of EDC, is setting up a 7-megawatt hydro power plant in Kerala and another 15-megawatt unit in the state. The company has also signed a pact with the Arunachal Pradesh government to develop five hydro-electric projects totalling 210 megawatts on a build-own-operate-transfer basis. Amar Singh and EDC Executive Director Sanjiv Saraf were not available for comment. At the time of writing, EDC’s honeymoon with punters seemed to be over, with the stock down 20 per cent from its peak. The recent run-up may have had little to do with its fundamentals, but if the projects in EDC’s pipeline do materialise, the scrip could make it into long-term investors’ portfolios.

Family feuds in corporate India or for that matter in the West are nothing knew. The basic difference between 2005 and 2008 is that Anil has made a mark for himself in the time being. His confidence in his advisers and close aides may be more today than what it was in 2005. This newfound confidence could make Anil a tough customer to talk to.”

Chidambaram, Deora, and RBI Governor Reddy faced heat from Amar Singh for not managing the inflation well, letting the rupee fall and increasing fuel prices

But such battles do take their toll on other fronts. Says Ganesh Sherman, Head of Human Capital Advisory at consulting firm KPMG: “The most affected is the top management. In a couple of corporate battles in India over the last one month, there were immediate gossip and rumours about the top management personnel looking out for opportunities.” Sherman points out that operations also suffer during these times as employees become risk-averse and try to keep themselves away from trouble.

“They have to continuously justify the company’s position to outsiders without complete knowledge about the situation and it becomes a constant distraction in their work. The number of CVs flying around goes up as does attrition,” adds Sherman.

The fear of losing professionals isn’t likely to put an end to the fight. At the time of writing, the Mukesh camp was preparing to haul the rival camp over the coals for not adhering to corporate governance norms—how is it that the non-competition agreement of January 12 was not disclosed to MTN in the first place, they ask.

The Anil camp fired its salvo in return. It said that 63.38 per cent shares of R-Comm are owned by AAA Comm, an investment vehicle of Anil Ambani, and AAA Comm was not party to the non-competition agreement of January 12, 2006; so it can do as it pleases with these shares. It also spoke about seeking damages from RIL for spoiling its business interests. A veteran who has seen both the Ambani brothers at close quarters says: “Both of them have the ethos of Dhirubhai in them—they have to be #1 in whatever they do.

And now they are targeting each other in that quest.” That fierce competition is best manifested in the market capitalisation race, which eventually decides which group is more valuable. A few times it also becomes visible in the media—international media no less—when an article on the wives of billionaires includes just one of the brothers’ wives (Anil’s wife, Tina) in a list of 10.

Additional reporting by Kushan Mitra & Virendra Verma