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Through these fields of destruction
Baptism of fire
I've watched all your suffering
As the battles raged higher
And though they did hurt me so bad
In the fear and alarm
You did not desert me
My brothers in arms
Dire Straits
Rejoice, Reliance has split
BY PREM SHANKAR
19 June, 2005: Cheers. India’s largest private sector group has split. The Reliance wrangling and the accompanying mudslinging exercise between the camps of feuding Ambani brothers probably end here, in the aftermath of a truce brokered by their mother Kokilaben. The group will be split under two heads rather than one serving under another.
Flagship Reliance Industries now goes to elder brother Mukesh, who was always seen as the backroom boy of Reliance operations, which re-scripted the way business was run in pre-liberalisation India and adapted to the overwhelming changes post-liberalisation, with the ruthless finesse which can characterise only Reliance. That is exactly why Reliance is India’s largest private entity. And that’s also why it still holds sway over the corporate and political spectrum, even after the split brokered by compulsion of remaining at the helm of businesses it runs.
The Reliance struggle is not only about a clash of egos between estranged brothers. It is also about big money. It ain’t easy to share Rs 100,000 crore, even if you share the same blood which built it from scratch. It ain’t easy to understand the intricacies involved in running such an empire with two power centres at helm also.
Mukesh as well as his younger sibling enjoyed the vast contours of power which three million investors bestowed on them by default through their father Dhirubhai Ambani. Though a comparison is out of context, it is too tempting not to state that neither of the siblings would have the raw energy and guts of steel with which their father built the overwhelming structure of Reliance on which these men were pitchforked to the pinnacle of corporate success. That is different stuff.
Now, this doesn’t mean either that the Ambani brothers are incapable to hold on to their respective porfolios that have been clearly redefined by their mother through an exercise of finesse crafted to perfection by family friend and ICICI honcho KV Kamath.
To put that Herculean task that Kamath undertook to corporate India’s satisfaction as well as of the warring brothers and unnerved investors in a nut shell, flagship firm Reliance Industries would now be under the total control of elder sibling Mukesh Ambani. The firm has its interests spread over Oil refining, petrochemicals, oil retailing and oil exploration. Mukesh would also now have on his own the control of IPCL, the petrochemical firm.
The media-savvy Anil would now preside over Reliance Energy, involved in power generation and distribution, Reliance Infocomm and Reliance Capital, a non-banking finance company.
Now, Reliance Infocomm was Mukesh’s pet project and at the centre of so many accusations and charges of murky dealings during the slug-fest enacted by Mukesh and Anil camps. It would have taken some sort of corporate diplomacy at its best to make him agree to part with it. You got to give up something dear, to get something bigger, may be the persuasion mantra which Kokilaben would have passed on to Mukesh to do that.
On the face of it, the Reliance breakup has been a well-thought out exercise, taking into consideration the asset base as well as the valuation of the firms under the Reliance umbrella and hence it’s a win-win situation for the brothers. But the Reliance saga has only been partly unfolded, with the parent firm transferring its holdings in power generation, financial services and cellular business to a separately listed firm to be run by Anil. Current investors will get the shares of new firm at the same ratio of their holding pattern in Reliance.
Investors on their part saw the Reliance feud as an opportunity for growth rather than path to destruction as is evident from the rise in market capitalization of Reliance between November 22, 2004, and June 18, when the split deal was clinched, from Rs 74,399 crore to Rs 83,729.05 crore. The feud came to the open on Nov 18 after Mukesh admitted to ownership issues in Reliance.
The message is that smaller companies are easier to run. So if your firm is growing in a size disproportionate to its known managerial resource capabilities, split it. The brothers in arms seem to have done it. Their baptism by fire is over.
Chronology of a split for posterity
2004
Nov, 18: Mukesh Ambani admits to ownership issues in Reliance
Nov 22: Anil asks mother Kokilaben to settle the issue
Nov 23: Mukesh’s shots off e-mail to RIL employees stating that CMD is the final authority (Read: I am the boss)
Independent director M L Bhakta quits
Reports say RIL Board bestowed overwhelming powers to Mukesh in a meet held in July 27, 2004, triggering tension between the Ambani brothers.
Nov 25: Six directors quit Reliance Energy (REL)
Nov 29: Anil’s letter to REL staff
Nov 30: REL board asks directors who quit to reconsider their decision
Dec 2: RIL’ s Rs 8,100 crore investment in Reliance Infocomm comes to the fore
Dec 8: Reports say Mukesh got 12% sweat equity in Infocomm
Dec 12: REL seeks RIL’s opinion on gas supply
Dec 13: Market regulator SEBI asks bourses to look into RIL cororate governance issues
Dec15: Anil seeks board meeting to discuss corporate governance issues
Dec 20: Anil aide Amitabh Juhunjhunwala quits as RIL treasurer and REL director
Dec 23: Mukesh gives up 50 crore sweat equity in Reliance Infocomm
2005
Jan 3: Anil quits IPCL boars, blasts Mukesh aide Anand Jain
Jan 19: REL directors withdraw resignation.
IPCL asks Anil to reconsider resignation
Jan21: Reliance board backs Mukesh on buyback, ignores Anil’s pleas on corporate governance issues
Feb 15: Infocomm takes back one crore shares gifted toPromod Mahajan aide Ashish Deora
Mar 9: ICICI ‘s K V Kamat completes Reliance valuation
Apr 7: Anil alleges phone tapping
April 27: Anil refuses to sign RIL accounts for 2004-05
June 18: Kokilaben announces Reliance settlement
BY PREM SHANKAR
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