"ADAG moves court to save MTN deal"

SAFE THAN SORRY

Group Cos File Caveats To Stop RIL From Blocking Transaction


THE war of words between the Ambani brothers over RCom’s proposed reverse merger with MTN may now reach the courts. Two companies of the Anil Dhirubhai Ambani Group (ADAG) have filed caveats in the Bombay High Court, which are intended to ensure that no ex-parte order was issued in case Mukesh Ambani’s flagship Reliance Industries (RIL) attempts to enforce its claimed first right of refusal in case of the MTN deal. Sources close to the development said Reliance Communications (RCom), which is in talks with MTN to create one of the world’s top telecom companies, and another company AAA Communications have filed the caveats in the Bombay High Court last week. ADAG’s investment arm AAA Communications holds 63% stake out of the group’s 66% stake in RCom.

The bone of contention between the Ambani brothers lies in RIL’s claim that it holds the right of first refusal in case RCom is sold to any third party. RCom denies any such right. RIL sources say that ADAG has repeatedly sought to enforce this right in case of various initiatives by RIL and by Mukesh Ambani and his associates.

Although MTN has maintained that the sibling rivalry between the Ambani brothers will not have any impact on its talks with RCom, experts said the deal may face the threat of getting delayed by legal proceedings. “This threat may have an impact on the share-swap ratio,” said a source, adding that MTN is now scrutinising the legal implication of RIL’s claim. However, this could not be independently verified with MTN.

It is learnt
that Anil Ambani is expected to visit London to give final touches to the proposed deal. Ken Kosta, Lazard’s head of Europe, is leading the ADAG effort on this deal from his London office. If the deal goes through, it will create a telecom company with a combined subscribers of 115 millions in Asia, Africa and the Middle East. The broad contours of the deal being discussed between the South African telco MTN and RCom indicate the ADAG will emerge as the largest shareholder of the Johannesburg-based MTN, while RCom will become the subsidiary of MTN. If the deal goes through, ADAG is expected to get nearly one-third stake in MTN by swapping his shareholding in RCom. He may chip in a few billion dollars to top up his offer, depending on the share-swap ratio between the two companies. Ambanis square off yet again

THE exact details of the deal have not yet been finalised. Both the parties have signed an agreement to hold ‘exclusive talks’ till July 8.

The animosity between the Ambani brothers is nothing new. They parted ways in June 2005 after one of the prolonged and most bitter battles in the history of corporate India. Since then, both the brothers have grown their business manifold and have displayed a habit of obstructing each other’s expansion plans. RIL sources claim that this propensity has mostly been exhibited by ADAG which has repeatedly objected to various initiatives.

However, this round of battle was initiated by RIL, which two weeks ago sent a letter to MTN claiming that it enjoys the first right of refusal in case RCom is sold. RIL’s claims are based on a disputed agreement with three entities of ADAG on January 2006. RIL had also sent the same letter to RCom a day later. The January 2006 agreement was to implement the demerger of businesses between the brothers.

RCom immediately come down heavily on RIL. In a communication, which was public within a day after getting the RIL’s letter, RCom had said: “ The tone of the letter clearly indicates that it is 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 use of threatening and coercive language by RIL, India’s largest private company, with MTN, a globally respected telecom major, is very unfortunate.”

RIL had earlier said: “It has in good faith notified both ADAG and MTN of the stipulations contained in an agreement, the validity of which has never been questioned so far by ADAG.”