April 27 was the day of personalities towering over performance. On his way to attend the board meeting of the Rs 66,051 crore Reliance Industries Ltd (RIL), Vice-Chairman and Managing Director Anil Ambani had reiterated his earlier allegation that all was not right within India's largest private-sector company and he was single-handedly fighting the "Reliance XI"-the RIL board-for better corporate governance and better shareholder reward.

The weight of his words mattered more than the deeds of the company. Despite RIL posting a whopping net profit of Rs 7,572 crore for 2004-5-the highest among all private companies and 47 per cent more than the profits made in 2003-4-the stockmarkets greeted the news by shaving off Rs 8 from the share price of RIL. Though one day's response is hardly a yardstick to go by, the overhang of the ownership battle over the future of Reliance Group companies is undeniable (see graphic on following page).

BATTLE ENTERS SECOND STAGE ROUND I: WHO will OWN WHAT There are clear indications by now on who will own what

ANIL TO GET RELIANCE INFOCOMM: Largest private-sector telecom player in India RELIANCE ENERGY: A Rs 4,592 crore power company RELIANCE CAPITAL: Runs a mutual fund, insurance firm MUKESH TO GET RELIANCE INDUSTRIES: The Rs 66,051 crore company is India's largest private sector company IPCL: The former PSU is a Rs 8,331 crore company

ROUND II: AT WHAT PRICE RIL buys 23% stake of IPCL held by Reliance Capital at an undisclosed price. The sale is allegedly undervalued to benefit RIL and hurt Reliance Capital, a company supposed to go to Anil. The next round of bickering is likely to happen over the valuation of Reliance Energy. RIL is the parent company of Reliance Energy, another company supposed to go to Anil. RIL has already sent notices to Reliance Energy for not sharing its annual results with the parent.

Especially so since there are some definitive pointers to the battleground in the Ambani versus Ambani fight gradually shifting from ownership to valuation. Seen in this context, the bickering can be interpreted more as a small forward movement toward a protracted settlement, and less as a setback to the widely anticipated solution. That's not to say that a settlement is either easy or around the corner. It's just that there are stray evidences pointing to Anil and Mukesh Ambani going past the issue of who will own which company and beginning to battle out the price (valuation) of diluting control in the companies that they are not going to keep (see box below).

One evidence of this came two days before the RIL board meeting. Anil's key aide Amitabh Jhunjhunwala protested the sale of Reliance Capital's 23 per cent stake in IPCL (a company that is likely to go to Mukesh) at a loss of about Rs 1,000 crore. Since Reliance Capital may go to Anil, the sale seems to benefit RIL (and therefore Mukesh) at the expense of Reliance Capital (and therefore Anil).

PICTURE SPEAK

REFINED RESULTS: RIL's functioning has not been affected by the family feud

Reliance Capital had held a 23 per cent stake in IPCL through another Reliance company, Reliance Petroinvestments (RPI) in which it holds 50 per cent equity. The remaining 50 per cent of RPI was held by RIL. RPI owned 46 per cent of IPCL shares. At the Reliance Capital board meeting on April 25 it was discovered that the company had sold its entire 50 per cent stake in RPI, which in effect meant it had sold its 23 per cent holding in IPCL. The entire block of RPI's IPCL stocks were sold to Reliance Pharma and Reliance Neutraceutical. Jhunjhunwala, the only Anil loyalist on the Reliance Capital board, protested the sale of shares. At current prices, the 23 per cent IPCL stock would be worth about Rs 920 crore. Depending on when the sale was done last fiscal, it could have been worth anything between Rs 605 crore and Rs 1,265 crore. RIL's explanation of the deal was that RPI got Rs 4.4 crore from Reliance Capital and had borrowed Rs 2,579 from the parent RIL to buy IPCL shares worth Rs 2,639 crore. The sale was without the approval of the Reliance Capital board and stock exchanges and shareholders were not told of it.

The last is yet to be heard on this, but the crux of the allegation is clear. The Mukesh camp has undersold Reliance Capital's stakes in IPCL. There are pointers to suggest that the war over valuation may have just begun. As the two Ambanis begin to disengage from companies that they are not going to own in future, each would like to pay the least price for the other party's stake in the company it is going to keep. Reliance Energy is likely to be the next company the valuation of which may be fought over. Already, RIL has sent a notice to Reliance Energy for not sharing results with it. Reliance Energy has denied the charge.

Anil continues to be the more vocal of the two parties. In his outburst on April 27, he accused the RIL board of conspiring to remove him. He also opposed the financial accounts and did not sign them "owing to the absence of relevant information" on RIL's transactions with Reliance Infocomm, headed by Mukesh, and disposal of plant and machinery worth nearly Rs 2,000 crore. Anil also stuck to his opposition to RIL's buyback of shares. His point was that out of 83 days since the buyback has been operative, RIL's share price has remained below the offer price of Rs 570 per share for 72 days. Significantly, the offer was raised at a time when the process of valuation of RIL and other group companies as part of the negotiations for a settlement between the two brothers is on.

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