Ambani feud: beware another Iscor
This is all a bit of guesswork because MTN has maintained absolute radio silence on the transaction.
But if the terms of the deal have changed it could be awkward for MTN CEO Phuthuma Nhleko, who by all accounts entered the negotiations on the expectation that MTN would be the takeoveror and exited it the takeoveree.
But shareholders might not mind, as the structure of the prior transaction did not involve a takeout premium while the new scheme could involve at the very least some sort of buying pressure on the stock.
Apparently, the core of the problem is that the family row between two brothers, Mukesh Ambani and Anil Ambani, who own different parts of the Reliance empire, is turning out to be much more intense than originally feared.
Their longstanding family feud has already spilled over into two court cases since the talks with MTN began just a month ago.
The first relates to the letter that Mukesh Ambani’s Reliance Industries Ltd (Ril) sent to MTN, saying that his company had the first right of refusal on any deal involving sale of Reliance Communications (RCom), which is 66% owned by Anil Ambani.
Two Anil Dhirubhai Ambani Group (ADAG) companies have filed “caveats” in Bombay’s high court to prevent an ex parte decision being made should Ril try to enforce its claimed first right of refusal.
RCom said that the right of first refusal claim was part of a “mala-fide design, with no substance, to simply try and disrupt talks between RCom and MTN, by raising the false bogey of litigation and damages".
The second is more gossipy.
The battle between India’s two richest men has understandably mesmerised the business world, and was written up in a long piece in the New York Times.
The article focused in a not particularly flattering way on Mukesh Ambani’s business practices, mentioning an intelligence-gathering network that would gather information about the “vulnerabilities of the powerful, about the minutiae of bureaucrats schedules, about the activities of their competitors”.
Quizzed about this network, Mukesh off-loaded the responsibility on to Anil, saying such activities were demerged from his part of the company when the empire was spit.
Anil’s lawyers threatened legal action for this accusation which they describe as “libellous” and “deserving of a clear, unambiguous and unqualified retraction and apology”. And the press on the spat has not ended there.
In an extensive story that appeared in the British Sunday Times yesterday, it is claimed that Mukesh’s backers have been working behind the scenes to persuade American financiers not to lend Anil the $7bn he needs to complete the deal. Spokesmen for Ril deny this is true.
The Times suggests a variety of reasons why Mukesh might be trying to derail the MTN deal. One is that when the Reliance empire was divided, Mukesh’s share was estimated to be worth at least three times the value of the companies handed to the younger Anil.
Yet since 2006, Anil’s personal wealth has increased to within $1bn of his brother’s $43bn, and it will probably leapfrog him if the MTN deal goes through, the report says.
Another is that Mukesh is intervening after his friend, Sunil Mittal, the boss of Anil’s cellphone rival, Bharti Airtel, lost out in his own bid to buy MTN.
The feud has put their mother, Kokilaben, in the middle again, but she is said to favour the MTN deal. Kokilaben helped Anil host a dinner at Christie’s this month, and sat next to MTN’s Nhleko, which the report says was taken as a sign she had given her blessing for Anil’s deal.
But what of the deal itself? Several news reports around the world, including the Sunday Times story, suggest that the deal is being restructured partly to avoid the possibility of Mukesh intervening.
The original plan was for a kind of reverse takeover, so that Anil would swap a portion of his RCom shares for MTN shares, while MTN would make an offer to RCom minorities, gaining perhaps half or more of the 33% of RCom stock in public hands.
The idea was that RCom’s stake would remain lower than the 35% required to make a general offer to MTN shareholders.
RCom would be technically a subsidiary of MTN, but Anil would be by far the largest shareholder.
The new plan could be for Anil to increase his stake higher than the 35% level.
According to the Sunday Times, Anil is looking at investing a further $10bn in cash to make him the undisputed owner with a 50% holding.
According to other reports, private equity firms have been approached with an investment of potentially $5bn up for grabs.
But how would Anil get around the requirement of a general offer?
One way would be to ask existing shareholders to waive their rights, but that would require a 75% majority vote.
Unfortunately for RCom, South African shareholders have seen this movie once before, also involving, ironically another Indian businessman Lakshmi Mittal.
Iscor minorities waived their right to a general offer,
Once the majority holding was achieved, board members representing minorities who recommended the deal were ejected.
MTN shareholders may be reluctant to fall for the same trick. The only other option is to make an offer at a premium.
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