Finally, a clear sky over Sea Wind

It is said in Reliance circles that DHA (Dhirubhai H Ambani) is present equally strongly in the DNA of both MDA (Mukesh) and ADA (Anil Ambani). And so, the settlement between the Ambani siblings last week, will now hopefully allow the two sides to get back to serious business and unlock the full potential of the companies under their control.

Clearly, shareholders of the erstwhile undivided Reli-ance group companies will be the most relieved. For weeks and months, as the bitter battle between the brothers raged on, shareholders waited and watched anxiously as the posturing and allegations of corporate governance violations took their toll on the group?s stocks.

In fact, for quite some time, the Reliance pack grossly underperformed the Sensex, even as the market in general headed northward. While from a systemic angle this can be viewed as a healthy sign, since the market is now less dependent on Reliance for direction, for the shareholders it meant extremely uncertain times.

Consider now what the settlement has done for the Reliance pack and its shareholders. Bet-ween November 18, 2004, the day the dispute became public, and June 17, 2005, the last trading day before the settlement was announced, the RIL stock gained only 10.14%, while Reliance Energy, in fact, fell 5.92% and IPCL fell 14.55%. The only real exception was Reliance Capital, which gained 69.73% during the same period. But in just two trading days postsettlement, between June 17 and June 21, RIL gained 7.5%, Reliance Energy gained 10.83%, IPCL 4.87% and Reliance Capital a hefty 22.78%. The euphoria also pushed the Sensex beyond the 7,000 mark.

While an RIL board committee will chalk out the nitty-gritty of the separation, most analysts now reckon that it?s a win-win for both sides. A report by brokerage firm CLSA, just two days before the settlement was announced, lists out what it means for minority shareholders of RIL. The key reason for Reliance?s under-performance gets addressed, the synergies in the core business remain intact, the value of investments gets unlocked and the ?conglomerate discount? vanishes. Most important, separate and distinct investment themes emerge for investors, allowing greater flexibility, the report says.

The lack of clarity on RIL?s strategic investments were proving to be a drag on the company, and the settlement takes care of that aspect. With RIL retaining its synergies in the core businesses, the task before the Mukesh Ambani group will be to grow them and go full steam ahead on its plans on oil and gas and petroleum retailing.

On the other hand, the newly created Anil Dhiru-bhai Ambani Enterprises (ADAE) group will have to pro-actively implement the massive expansion plans announced for both, the energy and infocom businesses. With Rs 85,000 crore plans on the anvil for Reliance Energy and challenges looming for Reliance Infocomm, funding will be a key priority. Alongside, the issues of untangling RIL?s investments in Infocomm and the points raised by Anil Ambani himself about its corporate governance practices would need to be resolved. Reliance Infocomm will also need to unlock value and get listed. Reliance Capital, for which Anil Ambani has already announced an open offer, will also need large doses of capital if the grand plans unveiled by him are to be implemented.

The Reliance split isn?t the first witnessed in corporate India. And it certainly won?t be the last. But there are important lessons India Inc would need to learn from it. The obvious one is on succession planning, even if responsibilities have been clearly demarcated. The second is on the need for professional managers to be insulated from promoter battles in the interest of shareholder value. The third was articulated at the height of the dispute by the finance minister himself, when he had urged the Ambani siblings to sort out their differences within the four walls of their home. And fourth, that the cause of some of the biggest corporate battles can be traced to the fragility of human relationships.

The country?s corporate landscape has changed forever as a result of the settlement and consequent separation of businesses. However, to the extent it helps unlock value for all the companies, it will, perhaps, be seen by the investing community as a happy ending. For a group that prided itself on creating shareholder value, that?s the least it could have done for its over three million shareholders.