Business | Opinion
India's Ambanis no longer brothers in arms
What an own goal by Mukesh Ambani. The Mr Big of Indian business risks losing credibility by prolonging a tiresome feud with his estranged younger brother, Anil, even though they have been running different businesses since they acrimoniously divided up Reliance in 2005.
- Financial Times
- Published: 00:07 July 22, 2008
What an own goal by Mukesh Ambani. The Mr Big of Indian business risks losing credibility by prolonging a tiresome feud with his estranged younger brother, Anil, even though they have been running different businesses since they acrimoniously divided up Reliance in 2005.
On Friday, the older brother scored a pyrrhic victory when MTN, a South African telecoms group, terminated merger talks with Anil's Reliance Communications, the second-largest Indian mobile operator. MTN's move came after Mukesh initiated proceedings against RCom, claiming that he had right of first refusal over Anil's 66 per cent stake in the operator. Faced with such an opponent, MTN had little choice but to withdraw.
One can only guess at Mukesh's motives. But if RCom had pulled off a deal with the Johannesburg-based telecoms group, Anil would have become the controlling shareholder of an entity with forecast earnings before interest, tax, depreciation and amortisation in 2009 of $10 billion. Given that Reliance Industries, the diversified petrochemicals behemoth that Mukesh controls, is expected to have 2009 earnings before interest, tax, depreciation and amortisation (ebitda) of $7 billion, this would have threatened the older brother's 'natural' pre-eminence within the first family of Indian business. The family, however, will now pay a high price for this behaviour, since it pushes up the cost of doing business for all Reliance entities.
The danger is that companies keen to do business with one brother start to fear vindictive behaviour from the other. Given their weight in the Indian economy - Reliance Industries is India's largest private sector company - this is far from ideal. More generally, the battle between the brothers has been a poor advertisement for India Inc, renewing concerns about corporate governance at a time when many Indian groups need international credibility to pursue overseas acquisitions. The Indian government, preoccupied with today's confidence vote, has missed an opportunity to knock the brothers' heads together. Indian business will suffer as a result.
OMV/MOL saga
As investors grapple daily with new horrors, it is good to know there are some things they can depend on. Take OMV and its relentless pursuit of MOL. The Austrian oil and gas group's acquisition of a fifth of its Hungarian counterpart last June led to an offer, laden with conditions, and a mucky tit-for-tat battle that shows no signs of ending. It is currently two-to-one to Austria in the lawsuits.
Distaste for both sides' management is palpable in the share prices. In terms of forward price/earnings ratios, MOL has moved from a 10 per cent premium to a peer group of European refiners to a slight discount. In spite of better earnings growth prospects than the sector, OMV has stayed broadly flat, at about a 20 per cent discount to European oils.
MOL's defence has been particularly ugly. Its most effective tactic has been to buy back shares to park them with friendly companies and institutions. It has trampled over shareholder value to do so. MOL paid about 29,000 Hungarian forints (Dh725) a share last July for stock it sold in March to Oman Oil Company (OOC) at 25,000 forints, estimates Wood & Company, a Prague-based broker - a book loss equivalent to 16 per cent of this year's forecast earnings.
Yet, it is OMV that could end up most damaged by the sideshow. Both want to be the dominant regional consolidator. But while MOL has cobbled together a network of allies, entering into ventures with Cez of the Czech Republic and OOC, the Austrians have more or less stood still.
If successful, the Hungarians' most recent manoeuvre - announcing plans last week to take a controlling stake in Croatia's national oil company - would take it further from OMV's grasp. Into the second year of sparring, it is MOL that is making the most progress. This is the flaw in OMV's waiting game: while facts may change, its plan does not.
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