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INDIA'S GLOBAL MAGAZINE

Business - The Ambani Brothers called it Splitsville

After a ding-dong battle that lasted seven months, rocked the markets and had the
government worried, the Ambani brothers called it splitsville. But can the newly independent
outposts of the $23 billion Reliance group do as well as the mother ship?

By Nupur Handa in Mumbai

On June 17, shares of Reliance group companies suddenly started to move north. However, hard-boiled market watchers weren’t scratching their heads in disbelief. For, word had been steadily trickling in from Mumbai’s Seawind, the multi-storey home of the Ambani family that the warring brothers, Mukesh and Anil, were close to a settlement. Shares of Reliance Industries touched a one-year high on reports that a formula for ending the ownership slugfest may be unveiled soon.

Early on June 18, the big news broke. Kokilaben Ambani, the matriarch of the Reliance group, India’s biggest private conglomerate, had stepped in to broker peace between her sons and divide the company.

Reliance Industries	Rs 85,000 cr
Market Cap	34% Mukesh
IPCL	Rs 4,000 cr
Market Cap	46% promoters
“Anil has enormous energy and drive and we share a common commitment to take forward the legacy of our father”

Reliance Infocomm	Rs 44,000 cr
Valuation	70% Anil
Reliance Energy	Rs 11,000 cr
Market Cap	50% promoters
Reliance Capital	Rs 3,000 cr
Market Cap	47% promoters

COUNTDOWN TO COMPROMISE

17 Nov 2004 Mukesh Ambani tells the media, “There other issues like ownership issues which are in the private domain.” Brings Ambani rift out in the open
22 Nov RIL issues media statement, where Mukesh clarifies, “My remarks were torn out of context. Dhirubhai settled all ownership issues pertaining to Reliance within his lifetime.” Anil Ambani empowers Kokilaben to decide on ownership as she deems fair
23 Nov Mukesh’s letter to RIL employees says, “CMD (Mukesh) is the final authority on all matters concerning Reliance.” M.L. Bhakta quits RIL Board
26 Nov 6 directors quit Reliance Energy. Anil says: “The board will consider the resignations.” All powers of Anil are stripped by Mukesh
30 Nov Anil tells RIL employees in a mail, “Watch out for chamchas, chelas and cronies.”
3 Dec SEBI to take up issue of Reliance group entities’ corporate governance. RIL investment in RIC questioned
7 Dec Anil seeks proof of Dhirubhai having settled succession from Mukesh
8 Dec It is revealed RIL put in Rs 8,100 cr in RIC without board discussion
16 Dec Mukesh says the architecture of the group’s ownership obviated the need for a will by Dhirubhai
19 Dec Sweat equity to Mukesh questioned as he was not initial promoter of RIC
23 Dec Mukesh annuls sweat equity
25 Dec Sebi to track RIL’s buyback to investigate transactions in the RIL scrip
4 Jan Anil resigns from IPCL board and blames Anand Jain for rift
20 Jan REL Board meets: Amitabh Jhunjhunwala & J. Ramachandran resignations accepted. Other four withdraw resignations
24 Jan Anil sends RIL board 500-page letter on governance issues at RIL
19 Feb RIC share scam: Probe Mahajan role, says Congress
8 Apr Anil claims his phones are being tapped by Reliance Infocomm
18 Jun Settlement announced. Anil resigns from RIL board

The $23 billion group, whose businesses include the world’s third-largest oil refinery, the world’s largest maker of polyester yarn and India’s biggest mobile telephone services company and its largest power company, had been in turmoil for months. Mukesh and Anil Ambani engaged in a public battle for succession after their father’s death in 2002.

Under the compromise announced by Kokilaben, Mukesh, 48, will run the oil and petrochemicals giant, Reliance Industries, where he is already chairman, as well as Indian Petro-Chemicals Ltd. Anil, 46, will run Reliance Energy and Reliance Capital and the mobile telephone company, Reliance Infocomm.

“I have today amicably resolved the issues between my two sons keeping in mind the proud legacy of my husband, Dhirubhai Ambani,” Kokilaben said.

The effect on the markets was dramatic. The Sensex rose more than 1 per cent on the first trading day after the settlement to a record close of 6,984.55, pushed by rallies in the Reliance companies. During the day, the Sensex briefly rose above 7,000 for the first time ever. The following day, it vaulted clear over the 7,000 mark. Investors were indeed re-assured.

Shares of Reliance Industries gained almost 5 per cent, to close at Rs 630. The companies going to Anil, however, soared. Reliance Energy surged 11 per cent, to Rs 658, and Reliance Capital jumped nearly 25 per cent to Rs 294. Reliance Infocomm is not publicly traded.

Investors seemed to be voting not only for the more forward-looking businesses that Anil will receive in the deal, but also for his more public persona. Mukesh, educated at Stanford University in California, is considered a traditionalist by comparison with his flamboyant, Wharton-educated brother, who is married to a former Indian movie star.

The brothers’ seven-month quarrel had heavily influenced the markets, with the Sensex charting the course of the disputes. The shares of the group’s companies often suffered as Anil accused his brother of paying scant heed to corporate governance and even of tapping his phones.

The restructuring of the group, with its many strands of ownership, could take months to work out. For instance, the Ambani family controls 46 per cent of the $17 billion oil refiner Reliance Industries, while about 12 percent is held by a family-controlled investment trust, and the rest by other companies. After the deal, Mukesh sent a farewell e-mail message to the 40,000 employees of Reliance Infocomm, considered his pet project. Anil said he would rename his group Anil Dhirubhai Ambani Enterprises. He announced aggressive investments in his group: $230 million in Reliance Energy and $460 million in Reliance Capital. He said the settlement was the dawn of a “new life, a new beginning” for him.

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