FE Editorial : Family business

Written by The Financial Express | Updated: Dec 29 2011, 08:35am hrs
Each time theres talk of the Ambani brothers uniting, shares of Anil Ambani group companies shoot up, not surprisingly given the vast amounts of cash (R61,490 crore in September 2011) Mukesh Ambanis Reliance Industries hasmarketmen seem to think that, if the brothers combine forces, some part of this cash trove would come in handy to wipe out debts of the Anil group, R34,000 crore in the case of Reliance Communications. So when news came on Tuesday of the brothers and their families helicoptering down to their fathers birthplace, for his 80th birthday celebrations, Anil group stocks jumped4.97% in the case of RCom, 3.4% in the case of Reliance Broadcast, 1.87% in the case of Reliance Industrial Infrastructure, and so on. Shares of Reliance Industries, the market seemed to be saying something, fell 1%. When no corporate announcement was made at the reunion, many stocks like RCom reversed part of the gains.

Whether the Ambani brothers can firmly bury the past is impossible to predict, given the unusually sharp level of acrimony in the past. If Mukesh nixed Anils chances of a deal with South Africas MTN by citing his right of first refusal, Anil damaged Mukesh through his famous ad campaign. Yet, the fact remains that, after Anil lost the gas case in the Supreme Court, there have been several moves by the brothers to get to a civil business relationship. So, the no-compete clause was dropped in May last year, and this is what allowed Mukesh to enter into the telecom business and even suggested a tie-up, or more, between the brothers. Since Mukesh has talked of an asset-light investment strategy, this suggests Reliance Industries telecom venture will definitely have a relationship with RComusing the latters telecom towers is the obvious thing that comes to mind, but there could be more. Since scrapping the no-compete allowed elder brother Mukesh to plan a foray into telecom and financial serviceshe entered into a tie-up with global financial services giant DE Shaw, and bought Bharti-Axa as part of the financial services foray, though the deal fell through for other reasonsit is only natural that there will be a quid pro quo. Apart from the telecom collaboration, whatever form that may take, another possibility is that the two may end up working on a gas deal. Given theres a move to scrap the single-part electricity bidding, a deal at a higher gas pricethe low price was the bone of contention earlierwont hurt Anils profitability either as the higher gas price will be a pass-through to the customer.

The point to be made, however, is that while the brothers are working towards a more harmonious relationship, this doesnt necessarily mean their businesses will be merged. Indeed, as has happened in so many business families, now that the brothers have gone their own ways and grown both sales and market cap, getting back to more harmonious family relations cant hurt. Reading more into it may be tantamount to trading in rumours.