NEW DELHI—India’s billionaire Ambani brothers are preparing to move their rivalry into the marketplace, marking a new era for one of the most closely watched family relationships in global business after battling each other in court for five years.
Reliance Industries Ltd., backed by Asia’s richest man, Mukesh Ambani, and Reliance ADA Group, controlled by his younger brother, Anil Ambani, said Sunday they are scrapping the 2006 noncompete agreements that prevented them from entering the same sectors.
Those agreements were struck after the brothers in 2005 split up the multibillion-dollar Reliance conglomerate of companies founded by their father, Dhirubhai, who became a business legend in India for his rags-to-riches story. The latest deal means Mukesh can enter growth industries such as power, telecommunications and financial services, while Anil can try his hand at oil and gas exploration, retail and petrochemicals.
The move, which was accompanied by a prepared statement from the companies that said they hope to create an “overall environment of harmony, co-operation and collaboration,” is the most significant effort by the brothers to resolve their differences amicably and avoid the distraction of future legal battles.
On May 7, India’s Supreme Court settled what had become the largest dispute between the Ambanis when it ruled that Mukesh doesn’t have to supply natural gas to Anil for power plants according to the terms of a family agreement, because a higher government-set price should take precedence.
The deal does have one major exception: Reliance Industries agreed not to become a generator of natural-gas-powered electricity until at least March 2022, ceding that terrain to Anil’s Reliance ADA Group for now. At the direction of the Supreme Court, the brothers are now negotiating a gas-supply contract based on the government price.
In separately issued but identical statements, the companies said canceling the 2006 pacts “will eliminate any room for any further disputes between the two groups on matters relating to the scope and interpretation of the noncompete obligations.”
Conflicting interpretations of the noncompete terms became a major issue in 2008 when Reliance ADA Group’s cellphone unit, Reliance Communications, was exploring a potential merger with MTN Group Ltd. of South Africa. Mukesh Ambani blocked the deal by arguing he had first right of refusal to take over Reliance Communications, because he had only stayed out of telecommunications to honor the noncompete pact. Reliance ADA Group contended that he didn’t have that right, but the issue scuttled the deal.
Both companies declined to comment on what spurred their detente after such acrimonious battles in the past. Rajesh Chakrabarti, a professor at the Indian School of Business in Hyderabad, said the Supreme Court’s ruling forced the two sides to the negotiating table on the natural-gas dispute, setting the table for further compromise.
But he cautioned that the scrapping of old pacts was likely a “cold business calculation by both companies” after reassessing their market positions five years since the Reliance break-up. “I wouldn’t read into this being a rekindling of the love between the two brothers,” he said.
Reliance ADA Group has emerged as a financial-services giant, operating India’s largest mutual fund with $24 billion under management, and it now has vast investments in power plants and movie distribution, besides controlling the No. 2 cellphone carrier. It has a good head start in all those areas if Reliance Industries chooses to enter any of them.
Reliance Industries, with $44.6 billion in annual revenue, has solidified its position by developing a major natural-gas find off India’s east coast into a steady profit driver while also expanding the country’s largest oil refinery, which it operates in the Western state of Gujarat, into a facility that can process 1.24 million barrels of oil a day.
Analysts said the flexibility and freedom that come with doing away with noncompete provisions will be beneficial to both conglomerates.
“It’s a positive move for both groups and will likely be accretive to shareholders on both sides,” said Deepak Pareek, an analyst at Mumbai-based brokerage Angel Broking. He said it is still premature to speculate on which sectors either company will enter, but said there will be many opportunities to press into new areas.
Reliance was founded in 1973 by Dhirubhai Ambani, who started as a textile trader in Mumbai and built India’s largest private-sector company by expanding into sectors such as clothing manufacturing, petrochemicals, oil refining and oil and gas exploration.
When he died in 2002, Mukesh and Anil, his sons, fought over how to run the business empire he left behind. Their agreement to break up the company has been at the root of many of their legal disputes.
