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Ambani feud puts pressure on MTN deal

NEW DELHI (Reuters) - A fresh row between India's warring billionaire Ambani brothers could delay, but not kill, a tie-up of Reliance Communications RLCM.BO, India's No.2 mobile operator and South Africa's MTN Group MTNJ.J to create an emerging markets telco that would rank in the global top 10.

A deal may hinge on whether the brothers can avoid a lengthy legal wrangle that would severely test MTN’s patience.

Exclusive talks between Reliance Communications, controlled by Anil Ambani, and MTN appeared to be progressing well until Reliance Industries RELI.BO, run by elder brother Mukesh, claimed last week it had a right of first refusal to control of the mobile firm.

Analysts say Mukesh Ambani’s claim, based on a complex 2006 agreement after their mother brokered a deal to carve up the late Dhirubhai Ambani’s business empire, means a deal with MTN is unlikely before a 45-day exclusivity period expires next month.

“A deal with Reliance is not impossible, but it is not probable. It’s somewhere in between,” said Rishi Sahay, of Indusview Advisors.

“There are so many ifs and buts, but there is clearly intent on behalf of both parties. When they know they can create one of the world’s biggest telecom companies, I think they’d go all guns blazing for that,” said Aman Bajaj, managing director of Nine Capital, a boutique advisory firm.

Investors are wary of any delay.

Shares in Reliance Communications, which stepped up to the negotiating table on May 26 after bigger rival Bharti Airtel BRTI.BO pulled out of talks with MTN, have fallen every day this week, losing close to 3 percent in a rising market .BSESN.

(For Graphic related to Reliance and MTN shares, click: here )

OTHER OPTIONS

MTN, which holds its annual meeting on Thursday, may have other options than to hang around and wait for the squabbling Ambanis to resolve their dispute.

Emirates Telecommunications ETEL.AD has previously said it was evaluating a possible bid for MTN, the largest telecom in sub-Saharan Africa, and China Mobile 0941.HKCHL.N has said it was interested in the South Africa market.

“MTN has in the past, and now also, got a multiple number of suitors,” Indusview’s Sahay said, adding MTN shareholders would likely press for details of how the talks were going and what other options lay ahead.

Sources and media reports have said the structure of a deal would see MTN take control of Reliance Communications, with Anil Ambani swapping all or most of his 66 percent holding to become the largest shareholder in MTN.

That prospect seems to have spurred Reliance Industries, India’s biggest firm, into action, laying claim to first right of refusal on any transfer of that controlling stake in Reliance Communications.

“I think there’s clearly a possibility. If there weren’t any possibility, they would not be pursuing it that aggressively,” said Nine Capital’s Bajaj, who predicts the Ambanis would opt for an out-of-court settlement rather than a protracted, and costly, legal battle.

Mukesh, ranked by Forbes magazine as the world’s fifth-richest man, and Anil, a close sixth, split acrimoniously in 2005 when they were unable to co-manage their late father’s sprawling business empire.

Separately, an agreement was signed in January 2006 by Reliance Industries and companies then under its control, but which are now part of Anil Ambani’s Anil Dhirubhai Ambani Group (ADAG), prompting the claim of first refusal.

In its 2006 listing documents, Reliance Communications said there was a potential risk from a trademark management agreement, a non-compete agreement and a shared services agreement executed when the company was part of Reliance Industries.

On Friday, Reliance Communications said the claim by Reliance Industries was “legally and factually untenable, baseless, and misconceived.”

The brothers’ long-running feud has several strands, including a dispute over the price Reliance Industries charges ADAG companies for its gas. The two firms also compete head-on for contracts, such as a bridge project to link south Mumbai to the mainland.

A consortium led by Anil won an initial bid for the bridge, beating an offer from a Mukesh-led group, but local media have reported the state government is reviewing that decision.

“This is not the first time they are fighting. Even in the previous short battles they had, they always settled it,” said Nine Capital’s Bajaj.

Editing by John Mair & Ian Geoghegan

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