Sibling rivalry: Will the brother reach a separation settlement by December 28, the birth anniversary of their father?

Sunday, 5th December 2004, 10:30 am. Location: Eighth floor, Seawind, the room of the late Dhirubhai Ambani, founder patriarch of the Reliance group of companies. Present are the warring Ambani brothers, Mukesh and Anil, their respective wives Nita and Tina, sisters Dipti Salgaonkar and Nina Kothari, and the matriarch of the family, Kokilaben. Over the next couple of hours, discussions on how the family estate and assets should be apportioned between the brothers, sisters and mother are carried out. It's at this meeting that the first concrete option for a split between the Chairman and the Vice Chairman of the Rs 75,556-crore flagship takes shape: Take ownership and control of Reliance Energy, Reliance Capital and Rs 10,000 crore, and also be assured of feedstock (gas) from RIL for Reliance Energy's gas business (the price of the gas, by when would supply begin, the quantum and other such details would need to be worked out), is what Mukesh would have thought a fair offer. What would have been left unsaid is: Keep your hands off RIL. That's mine.

When that offer was indeed made last fortnight, Anil Ambani, 45, obviously wasn't in any mood to accept it, and insiders close to him reveal that more than Reliance Energy and Reliance Capital, it's RIL that's the largest gleam in the Vice Chairman's eye. If Mukesh does after all control most, if not all, of the 34-odd per cent of the shares of RIL that constitute the persons acting in concert with the promoters, he's firmly in the driver's seat, and Anil sympathisers point out it's that holding that needs to be divided equally between the brothers. If that is at all possible, it would mean that not only does Anil continue as a Managing Director at RIL, he also gets a chance to take charge of a few of RIL's lucrative newer businesses like gas exploration, production and transportation, and gets more than a few fingers in the pie of 45 per cent RIL-owned subsidiary, Reliance Infocomm.

Insiders at RIL emphatically state that such an arrangement isn't acceptable to the Chairman, and even more preposterous is the idea of splitting this highly-integrated oil-to-textiles conglomerate between the two brothers. The idea of Anil continuing to function, even in a secondary role at RIL, they add, is unacceptable because of his several "inconsistencies" earlier in the year, when he announced the up power project, entered politics and bid for airport modernisation projects without taking the RIL board into confidence. In such a scenario, the only room for negotiation is for Mukesh to take up the cash settlement figure. At the time of writing, another family meeting appeared imminent, and RIL insiders are upbeat that a settlement will be thrashed out by December 28-the birth anniversary of the late RIL founder.

From Anil's point of view, Rs 10,000 crore as a settlement would seem abysmal considering that Mukesh wants to keep RIL all to himself. According to the BT 500, for the first half of 2004-2005, RIL had an average market cap of Rs 67,000-odd crore. Reliance Energy and Reliance Capital-which Anil has been offered-together had a market cap of a little over Rs 13,230 crore, which works out to less a fifth of RIL's value. In revenue terms too, RIL makes up three-fourths of the group, and don't forget the huge upside that exists in the new businesses of oil and gas, petroleum marketing, and infocomm. What's more, Anil has huge plans for Reliance Energy in generation, transmission and distribution, entailing an investment outlay of Rs 25,000 crore. Assuming a 3:1 debt/equity ratio (largely the norm for power projects), Reliance Energy still has huge commitments to make over the next few years. But then again, the question of an equitable split between the two brothers doesn't exist if Mukesh Ambani as Chairman does control a huge chunk of the promoter's stake, with Anil's holding on the other hand in very low single digits.

Unsurprisingly, the mood is sombre and tense at the residence and headquarters of the Ambanis, and sources in the hospitality industry point out that a number of the family's functions that were to be hosted at the two premier five-star hotels in south Mumbai have been cancelled in this festive season. RIL insiders instead point to the likelihood of a Krishna Katha being resorted to for nine days into the New Year in Jamnagar by the family matriarch, presumably to hammer home the message that divine pure love matters more than more mundane material conquests.

Anil with Ramesh Oza: Guru's intervention isn't enough

Of course, a settlement or, rather, a separation by December 28 would make the Krishna Katha immensely more pleasurable for all, including the hundreds of VIPs to whom invitations will be extended. More significantly, it will also send out a message of confidence and security to the 3.5 million shareholders of the group-including the foreign investors with a 22.85 per cent holding in RIL, many of whose representatives, reveal company insiders, were present at an informal meeting on the evening of December 4, at the poolside of Seawind (one day prior to the family meeting), where they were assured that matters would be resolved swiftly.

The Chairman is king: Dhirubhai H. Ambani (second from right) with his brothers Natubhai (extreme left) and Ramnikbhai (second from left)

To be sure, this isn't the first time RIL's integrity as a single entity has been threatened-and it's precisely because of this earlier threat that the company is better placed this time round to protect shareholder interests, and those of the Chairman. RIL insiders reveal that in the early to mid-eighties, when Dhirubhai was Chairman, he had elder brother Ramniklal as Joint Managing Director, and youngest brother Natvarlal as an Executive Director. At some point, not too long before Dhriubhai was hit by a stroke in the mid-eighties, the uncomfortable topic of dividing Reliance between the three brothers came up. Dhirubhai was reportedly furious, and that's when he decided that going forward, the Chairman would always be the central authority at Reliance rather than the family, by controlling the company via a maze of hundreds of investment companies (in due course, he got his brothers out of RIL by offering them settlements of a few hundred crores-said to be higher than the value of their shareholding at that time). At last count, one insider puts the number of these investment firms at 361, although figures ranging from 400 to 1,400 have been doing the rounds in the media. That's why RIL spokespersons keep stressing on "the architecture of ownership" of Reliance shares by the family, which "has been configured by Dhirubhai in a framework of companies. Given this configuration it obviates the necessity for a will. This architecture reflects the far-sightedness of Dhirubhai, who believed that Reliance went far beyond the character of a family-owned company...." They also add that the apparent "redefinition" of the powers of the RIL Chairman, the RIL Vice Chairman and the Executive Directors at the July 27, 2004 board meeting (which allowed the Chairman to revoke decisions taken by other EDs) was in fact more of a restatement. "That the Chairman is the final authority had already been decided by the board. At the July meeting, it was only restated," adds the spokesperson.

A SURVIVOR'S TALE

Walchand Capital's Jha: Lessons from the past Every business family conflict is driven by its own unique circumstances, reason (or the lack of it), and protagonists, some offended, some the offenders. Yet, every such bruising battle between blood brothers and sisters (and uncles and cousins) for property, power, assets and cold cash has plenty in common: Palace intrigue, family friends, friendly professionals, spiritual gurus, mediators, a battery of legal and accounting experts, and of course the media, sections of which in lapses of delusion attempt to play peacemaker. In a few such family fracases, there's also a matriarch, who's helplessly thrust forward to take a moral decision and decide the fate of a conglomerate worth thousands of crores. "When my father (Bahubali Gulabchand) passed away, my mother was expected to decide an equitable division between us three daughters, which she obviously wasn't in a position to do as she had little clue about the business. Fortunately in our case, she did not compromise on her relationships," points out Pallavi Jha, Chairman & Managing Director, Walchand Capital, who has been through a decade of painful "restructuring" in two phases, involving uncles, cousins, sisters and the inevitable "advising henchmen". According to Jha, when the patriarch from the previous generation-for whom the younger lot would have had immense respect-passes away, the peers begin to compete, and that's when things come to a boil. "Trust levels get compromised, and the obsession for money and power becomes more critical than relationships." Without getting into the specifics of the Walchand split, it's adequate to say that the settlements were messy, and took their time. For instance, in the first phase when the Doshis and the Gulabchands slugged it out, Jha points out, it took close to four years for a settlement to be thrashed out, aided largely by mediation from Sharad Pawar, Rahul Bajaj and the late S.S. Nadkarni. After much haggling, a Rs 50-crore figure was arrived at as compensation from the Doshis to the Gulabchands. Jha also makes the more significant point that "if splits are not quickly reached, they can breed stagnation". Business activity gets stalled, dirty linen is washed in not just the eyes of the public but also the regulators, camps are created between employees, and shareholder wealth is destroyed. "It's a kind of cultural destruction, and is a lose-lose situation." The best indicator of such ruin is the fate of Premier Automobiles, the jewel of contention during the Walchand spat, considering it accounted for some 70 per cent of the group's net worth. The fight, in hindsight, obviously wasn't worth it.

Last fortnight, even as sections of the media agonised over the lack of transparency in Reliance Infocomm's holding structure and the investments made by RIL in the voice and data business, RIL officials maintained that the entire structuring was above board: Sweat equity (of 12 per cent given to Chairman Mukesh by the board of holding company Reliance Communications & Infrastructure Ltd., RCIL, via an agreement entered into between the two in July 2000) is a norm in the it and telecom business; the fully-convertible cumulative preference shares of RIL worth Rs 8,100 crore in Infocomm are an accepted financial instrument as they minimise the downside for investors in such long-gestation projects (if things go wrong, they still get an 8 per cent tax-free redemption); all RIL-related investments were cleared by the RIL board; RIL holds close to 37 per cent directly and indirectly in Infocomm (taking into account RIL's 45 per cent in RCIL), and this stake will go up significantly once the preference shares are converted into RIL equity; and that all the companies involved were legal entities that filed their returns, and were subject to audit.

Will the many red herrings about Reliance Infocomm damage its prospects? RIL insiders point out that the Chairman was working on an overseas listing of the voice and data company, scheduled for some time in the coming financial year. Those listing plans may get delayed a bit, not so much because of the dust hovering over Infocomm, but simply if the brothers fail to reach a quick division. Sources add that if the ownership differences between the brothers hadn't spilled into the public domain in mid-November, they would have sooner than later, the only (vital) difference being that the ownership issue would have been settled first and then splashed in the media. For, the Chairman was keen to sort out who's the real boss at RIL (and Infocomm) before he ventured to raise money in the global markets.

More than Infocomm, point out bankers in Mumbai, the bigger threat for the Ambanis is the shifting of the spotlight onto the labyrinth of investment companies that forms the persons acting in concert, and which holds the majority of the promoter holding in RIL. What if the government or any authority was to decide to take a closer look at these firms? Clearly, there couldn't be a better reason for the brothers to put an end to the cloak-and-dagger hostilities, give some, take some and go their respective ways. Celebrations on December 28 would then be on line.