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Ambani Duo Scrap Non-Compete Pact; Doors Open For New Forays

By TEAM VCC

  • 24 May 2010

This could be read as a move towards smoking the peace pipe or taking their intense rivalry to the market place. The estranged Ambani duo—Mukesh Ambani and younger brother Anil Ambani—have, in a landmark move with far-reaching implications, agreed to scrap the 2006 non-compete agreement which restricted them from entering into each other’s business domains.

What this literally means is that both brothers can now enter into any business domain, with the exception of gas-based power production by RIL for a set timeframe. So, ADAG can explore growth areas like education, refining and retail while Mukesh Ambani-led RIL can unleash huge plans in financial services, telecom and entertainment.

According to press statements issued by both groups on Sunday, RIL and Reliance ADA Group are hopeful and confident that all these steps will create an overall environment of harmony, co-operation and collaboration between the two groups, thereby further enhancing overall shareholder value for shareholders of both groups, said the statement.

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Both groups said that they have entered into a new simpler, non-compete agreement with respect to only gas-based power generation by approving and signing an agreement canceling all existing non-compete arrangements entered into between the two groups in January 2006 pursuant to the scheme of reorganization of the Reliance Group.

As per the new agreement, RIL can enter the areas where ADAG Group is present in while the latter can theoretically enter refining and retail. There is only one exception in the new pact where RIL has agreed to not enter gas based power generation Business till March 31, 2022. The agreements have been approved by the Board of Directors of RIL and the respective Reliance ADA Group companies.

According to the statement, the cancellation of the existing non-compete agreement will provide enhanced operational and financial flexibility to both groups, and greater ability to participate in high growth sectors of the Indian economy, such as oil and gas, petrochemicals, telecommunications, power, and financial services. 

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These developments will eliminate any room for further disputes between the two groups, on matters relating to the scope and interpretation of the non-compete obligations.

RIL and Reliance Natural Resources Ltd. (RNRL) are negotiating the gas supply arrangements in accordance with the orders of the Supreme Court of India. Early this month, Supreme Court ruled in favour of Mukesh Ambani in the long battle for the gas supply from KG basin. Giving a grip to the elder Ambani, SC rejected RNRL's claim that it was entitled to get 28 mscmd of gas from the KG Basin at $2.34 mbtu as per the MoU entered between the brothers in 2005. The SC also asked the brothers to enter a new gas supplying pact.

Due to the feud between the brothers, a few major deals fell through in the past. Two years back, Reliance Communications (RCom) had called off merger talks with South Africa's MTN after Mukesh Ambani made claims on the shares of Reliance Communications. The senior brother had claimed that RIL had the first right of refusal to buy controlling stake in RCom.

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The new agreement will allow RIL to explore opportunities in the entertainment space, where it has firmly pitched its tent by buying the Indian Premier League (a sports-cum-entertainment combo) cricket team. ADAG has its presence across the entertainment sector through its arm, Reliance BIG Entertainment. It also bought majority stake in Adlabs (Reliance Mediaworks).  

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