The estranged Ambani brothers took a significant step towards ending a bitter feud by announcing, on Sunday, the scrapping of all but one of the non-compete agreements contained in the 2005 demerger scheme of the undivided Reliance Industries (RIL).
WHAT WAS THE PROBLEM?
The problem between the Ambani brothers started as early as seven years before!!! It was soon after the death of their father Mr. Dhirubhai Ambani in 2002. Finally they came to a peace treaty in 2005. According to it, a share of business has been given or allotted to both and both dare not interfere in each other’s business.
The deal was pronounced with bitter teeth, by Mrs. Kokilaben Dhirubhai Ambani, the soft- spoken mother of both. Though the agreement sounded simple, it had serious implications on both the parties.
WHAT WERE THE IMPLICATIONS ?
Under the 2005 agreement to split the Reliance group, Mukesh kept the petrochemicals, oil and gas units along with the flagship company, Reliance Industries. Anil got newer businesses such as power, telecommunications, financial services and entertainment. Both retained rights to the Reliance name.
So, as they were running their business separately, they started learning about the problems. If one person enters a new area of business, then the other person would not be. Both the parties were facing equal problems.
The scheme, however, soon turned unworkable after the government made it impossible for RIL to sell its gas to the Anil-led group as envisaged -- through a 17-year supply contract at 2003 prices.
The only other way, by directly transferring part of the gas assets in favour of the Anil Ambani group, too, would not have worked because of the non-compete agreement. The agreement, a part of the demerger process, reserves oil and gas for the elder brother only.
Next, it’s the turn for the elder brother. It seemed that Mukesh had a great interest in improving the areas infrastructure. But he was unable to enter the business agin due to the non-compete agreement as Anil had already established his presence there through Reliance Infrastructure.
Also, Mukesh, until now, had to sit and watch the telecom and financial sectors rising to great heights when he was not able to enter these businesses; also their battle over the price of natural gas from RIL assets halted plans for ADAG’s Dadri power plant in Uttar Pradesh; also, a merger between ADAG’s Reliance Communications and South Africa’s MTN was scuttled after Mukesh Ambani said he had the first right to buy shares in his brother’s company.
WHAT WILL THIS PACT DO ?
The cancellation of the non-compete agreements, under which the companies undertook not to work in the same sector, would give greater “operational and financial” flexibility to both groups.
Theoretically, this will allow RIL to enter the telecommunications and financial services sector, while the Anil Dhirubhai Ambani group (ADAG) can now enter the petrochemicals sector.
Both groups, however, agreed that RIL will not enter the gas-based power generation business until March 31, 2022, other than for its captive gas-based power plants.
WHAT MAY BE THE IMPLICATIONS OF THE TRUCE ?
Now, both the businesses will be able to run freely considering the fact that they are not abound any legal treaties or transactions.
This will, in all possibilities, increase the revenue of the younger sibling Anil, because, petrochemicals is one area which is largely in demand in the present days. The latest developments in the mechanical department and also, the manufacturers doing a very good job of improving, marketing, and presenting neatly to the people is an added advantage. Also, the loss to Mukesh in the natural gas sector earlier this month seems to have been settled. So, as an overall analysis, it’s a very good idea for the Anil Dhirubhai Ambani Group.
On the other hand, it is not a bad situation for Mukesh too. The person who has been on a constant rise in position in the last few years will not lose his status. This is because of the significant dud in the telecom sector, in the present. This has come out after considering how the sector is poised in the next couple of years, notwithstanding rumours about Mukesh’s links with some new telecom players that had received spectrum for a pittance in 2008 — a decision that landed the Union communications minister Andimuthu Raja in hot soup.
Also now, Mukesh will be able to enter the total infrastructural sector, which he has been fascinated by, freely. This will considerably increase the income of the company since this has been one among the most sought sectors in recent years.
And to top it all, it has come as a welcome relief to Mrs. Kokilaben Dhirubhai Ambani since her sons had ended a long-term feud. Both the sons were making very good progress in their respective industries and were among the top businessmen in the world. While Mukesh has even topped the charts by being the world’s richest person for a period of time, Anil has been voted as the fastest growing businessman as he had rised more than 100 spots in less than an year.
This may also end up in a good family agreement. The recent visit of Anil with mother to Kedarnath and Badrinath and that of Mukesh being in Delhi for the past few days to end up the arguments strongly suggest a possible reunion. That would be the greatest ever reunion of India as they both, if combined, will form a very formidable partnership.
But these are the things far from the present situation. The recent info is, though they function as separate units, they will not interfere in each others matters. But, one can surely say it is a win-win situation for both the parties.
WHAT WAS THE PROBLEM?
The problem between the Ambani brothers started as early as seven years before!!! It was soon after the death of their father Mr. Dhirubhai Ambani in 2002. Finally they came to a peace treaty in 2005. According to it, a share of business has been given or allotted to both and both dare not interfere in each other’s business.
The deal was pronounced with bitter teeth, by Mrs. Kokilaben Dhirubhai Ambani, the soft- spoken mother of both. Though the agreement sounded simple, it had serious implications on both the parties.
WHAT WERE THE IMPLICATIONS ?
Under the 2005 agreement to split the Reliance group, Mukesh kept the petrochemicals, oil and gas units along with the flagship company, Reliance Industries. Anil got newer businesses such as power, telecommunications, financial services and entertainment. Both retained rights to the Reliance name.
So, as they were running their business separately, they started learning about the problems. If one person enters a new area of business, then the other person would not be. Both the parties were facing equal problems.
The scheme, however, soon turned unworkable after the government made it impossible for RIL to sell its gas to the Anil-led group as envisaged -- through a 17-year supply contract at 2003 prices.
The only other way, by directly transferring part of the gas assets in favour of the Anil Ambani group, too, would not have worked because of the non-compete agreement. The agreement, a part of the demerger process, reserves oil and gas for the elder brother only.
Next, it’s the turn for the elder brother. It seemed that Mukesh had a great interest in improving the areas infrastructure. But he was unable to enter the business agin due to the non-compete agreement as Anil had already established his presence there through Reliance Infrastructure.
Also, Mukesh, until now, had to sit and watch the telecom and financial sectors rising to great heights when he was not able to enter these businesses; also their battle over the price of natural gas from RIL assets halted plans for ADAG’s Dadri power plant in Uttar Pradesh; also, a merger between ADAG’s Reliance Communications and South Africa’s MTN was scuttled after Mukesh Ambani said he had the first right to buy shares in his brother’s company.
WHAT WILL THIS PACT DO ?
The cancellation of the non-compete agreements, under which the companies undertook not to work in the same sector, would give greater “operational and financial” flexibility to both groups.
Theoretically, this will allow RIL to enter the telecommunications and financial services sector, while the Anil Dhirubhai Ambani group (ADAG) can now enter the petrochemicals sector.
Both groups, however, agreed that RIL will not enter the gas-based power generation business until March 31, 2022, other than for its captive gas-based power plants.
WHAT MAY BE THE IMPLICATIONS OF THE TRUCE ?
Now, both the businesses will be able to run freely considering the fact that they are not abound any legal treaties or transactions.
This will, in all possibilities, increase the revenue of the younger sibling Anil, because, petrochemicals is one area which is largely in demand in the present days. The latest developments in the mechanical department and also, the manufacturers doing a very good job of improving, marketing, and presenting neatly to the people is an added advantage. Also, the loss to Mukesh in the natural gas sector earlier this month seems to have been settled. So, as an overall analysis, it’s a very good idea for the Anil Dhirubhai Ambani Group.
On the other hand, it is not a bad situation for Mukesh too. The person who has been on a constant rise in position in the last few years will not lose his status. This is because of the significant dud in the telecom sector, in the present. This has come out after considering how the sector is poised in the next couple of years, notwithstanding rumours about Mukesh’s links with some new telecom players that had received spectrum for a pittance in 2008 — a decision that landed the Union communications minister Andimuthu Raja in hot soup.
Also now, Mukesh will be able to enter the total infrastructural sector, which he has been fascinated by, freely. This will considerably increase the income of the company since this has been one among the most sought sectors in recent years.
And to top it all, it has come as a welcome relief to Mrs. Kokilaben Dhirubhai Ambani since her sons had ended a long-term feud. Both the sons were making very good progress in their respective industries and were among the top businessmen in the world. While Mukesh has even topped the charts by being the world’s richest person for a period of time, Anil has been voted as the fastest growing businessman as he had rised more than 100 spots in less than an year.
This may also end up in a good family agreement. The recent visit of Anil with mother to Kedarnath and Badrinath and that of Mukesh being in Delhi for the past few days to end up the arguments strongly suggest a possible reunion. That would be the greatest ever reunion of India as they both, if combined, will form a very formidable partnership.
But these are the things far from the present situation. The recent info is, though they function as separate units, they will not interfere in each others matters. But, one can surely say it is a win-win situation for both the parties.