Fight for power in family business

1. Fight for power in family business

2. REASONS FOR FAMILY SPLIT • Family businesses stagnate by the third generation only because the emotional bonding between siblings is missing. • The business doesn’t become too big to accommodate all of them and therefore, the enterprise becomes too overcrowded. • for some family groups it’s far easier to divide, rather than keep “it all together”.

3. THE AMBANIS • Dhirubhai Ambani was the founder and head of the Reliance empire. Reliance's annual revenues were USD23 billion - larger than Coca-Cola's . • Dhirubhai passed away on 6th July 2002 without leaving a written will of the INR 990 billion business. • According to the Indian Family Values, if the father dies then his eldest son takes hold of the business.

4. POST DHIRUBHAI • The elder son, Mukesh Ambani was appointed as Chairman and MD and the younger son, Anil as Vice Chairman and MD. • But the two brothers, who were a picture of unity when father was around, began to develop strains and ego problems when it came to managing the powerful empire jointly. • Both brothers wantedPOWERand were not ready to compromise. It was a nasty seven month long ownership row, which became public in November 2004.

5. CROSS HOLDING? • When a company owns securities issued by another listed company. • Maze of crossholdings? Co. A owns shares of Co. B, Co. C owns shares of Co. A. Therefore there is a web of cross holdings. • Under the Companies Act, a stake of at least 51% qualifies as majority holding. • Say I control a family business and invest 60% in company A, which then invests 60% in company B. This way I can control company B with only 36% (60 X 60) share. In this way, if Company B invests in Company C and so on, the stake decreases but control remains.

6. SIGNIFICANCE OF CROSS HOLDING • When holdings are managed via such complex chains of investment companies, it becomes very difficult to track who owns what and in what quantity. A typical case in point was Reliance Industries. • Indirect control in the investment companies that have a stake / share holding in Reliance. • It can be tricky to measure the exact value of a promoter's net worth due to a maze of cross-holding across various listed firms. It makes it difficult to estimate individual wealth in the case of Aditya Birla Group, Vijay Mallya's UB Group, M&M and Bajaj.

7. THE SETTLEMENT • Prime Minister , Manmohan Singh and Finance Minister, P Chidambaram tried to mediate between fighting brothers. Mother Kokilaben had to enter in the picture and she set a deadline of Dhirubhai’s death anniversary to settle the differences. After 18 hours long discussion and negotiation, a decision was made. • A deeply religious person, Kokilaben is said to have been warned by an astrologer that if the issue was not settled before July, it would drag on for years. • Finally the 48-year-old Mukesh was in charge of the cash cow and flagship Reliance Industries (RIL) and the erstwhile public sector IPCL (Indian Petrochemicals Company Ltd), with a total turnover of US$18.63 billion. • Anil, 46, got Reliance Infocomm, Reliance Energy and Reliance Capital, with a combined turnover of US$2.27 billion.

8. WHO HAD AN ADVANTAGE? 1.MUKESH OR 2. ANIL ?

9. THE ELDER SON

10. ABOUT RIL • RIL, is the second-largest company by market capitalization in India after state energy giant ONGC. • Operates the world's third-largest refinery in a single location, in the western state of Gujarat, with a capacity of 660,000 barrels per day. • With 21.55% of foreign funds, RIL is expanding its petrochemicals capacity to over 14 million tonnes per annum (mtpa) from 12 mtpa in the next few years to become the world's largest producer of polyester yarn and fiber. • IPCL, is India's second-largest petrochemicals company.

11. THE PRESENT SCENARIO • Currently, Mukesh Ambani is one of the richest person in the world. Following a strong share price rally on in his three group companies, India's most valued firm Reliance Industries, Reliance Petroleum and Reliance Industrial Infrastructure, the net worth of Mukesh Ambani rose to US $ 63.2 billion. • Anil Ambani has a net-worth of US $ 45 billion, making him the 6th richest person in the world. His was the world's fastest-growing multi-billion-dollar fortune in percentage terms as his wealth tripled in 1 year. • . Both brothers enjoy an equal stake in their respective entities. The two brothers have also agreed to demarcate their lines of businesses through a 10-year non-competition clause: Mukesh will not venture into power, telecom and financial services, while Anil won't enter petrochemicals, oil and gas.

12. ADAG VS RIL

13. The latest difference between the brothers is over the South African mobile giant, MTN, with whom Anil Ambani's Reliance Communications is in talks to buy over 40 per cent stake. Mukesh Ambani's Reliance Industries Limited has objected to the deal, claiming it has the first right of refusal over any stake sale by Rel Comm. • One of the case was of Krishna Godavari Gas Supply. That is discussed precisely in next slide.

15. KRISHNA GODAVARI GAS DISPUTE • The gas dispute between Mukesh Ambani-led Reliance Industries Ltd (RIL) and Anil Ambani-led Reliance Natural Resources Ltd (ADAG) began about three and a half years ago. • Anil Ambani began, what became the biggest battle between industrial giants that the country has ever seen, in 2006 when he filed a case against RIL over Krishna Godavari (KG) basin gas supply. • The two prices being well haggled over are $2.34/mmbtu, at which Anil wants to buy 28mmscd over 17 years; RIL wants to sell at $4.2/mmbtu subject to revision after five years. • The difference of just under two dollars in the respective prices can result in profit or losses that run into billions of dollars.

17. WHY PRICE $4.2/MMBTU • Reliance Industries Limited(RIL) had called for bids from various buyers in 2007. • The average bid made was $4.33/mmbtu. • After minor tweaking the govt. approved the price of $4.22/mmbtu. • Govt.’s profit share will be calculated on the govt. approved price only i.e. $ 4.22/mmbtu. • More the income from gas sales, more the profit.

18. SUPREME COURT VERDICT • The court verdict means RIL will be able sell gas at the government-fixed price of $4.20 per mmBtu (million standard cubic metres) — or even more if the government agrees — compared with $2.34 per mmBtu demanded by the Anil Ambani group firm Reliance Natural Resources Ltd (RNRL). • While RNRL lost one-fifth of its market value and closed 23.7 per cent down at Rs 52.10 on the National Stock Exchange, other Anil group shares were also hammered, dropping between 2.8 per cent and 8.5 per cent after the Supreme Court verdict.

19. EFFECT ON BRAND INDIA Directorate General of Hydrocarbons, which regulates oil and gas market in a candid admission, said that in the ongoing dispute between the Ambani brothers over the pricing and allocation of gas one casualty has been India’s image in the global petroleum market. Effect on foreign investments It will certainly have a negative impact on the global investment inflow in India’s oil and gas sector. We took years to create India as a good brand for investments in its oil and gas sector. This brand has now been hit by the ongoing controversy between the two Ambani brothers. We will try and counter such doubts but this will indeed affect the brand India

20. MAFATLAL • The Mafatlal family fight between brother, Atulya and his elder sister-turned-brother Ajay . • Ajay was formerly Aparna and some people claim that the gender change has been prompted by Hindu succession law that favors sons over daughters. • The fight began in 2005 essentially over the Mafatlal bungalow on Altamount Road. • The dispute began with Aparna-turned-Ajay residing in the house. Then it was 72-year-old matriarch Madhuri Mafatlal who dragged her original son Atulya and his wife Sheetal to court for placing security guards outside her house to harass her. The court stayed such restrictive actions. • The family fight then went on to become more ugly with the three sisters who were not party to the fight apparently taking sides too. Sisters Kunti, Gayatri and Malavika reside close to the Mafatlal Bungalow on Altaount Road and would visit Madhuri frequently, especially after the death of their father four years back. • Their relations with brother Atulya and his socialite wife Sheetal were strained but they were not "instigating'' the fight, said family friends.

21. CONTD… • Madhuri accused Atulya and Sheetal of harassment, "high handed treatment'' and "demands to remove other son Ajay'' from the sprawling five-bedroom flat. Since then twists emerged in the tale with Atulya's lawyer alleging that jewellery worth crores of rupees in the family trust is the bone of contention. • The mother clarified that she held only inherited family jewellery. "I hold no personal jewellery of you or for that matter of your wife and children'' her letter said. • The family jewellery was lying in two trusts numbered 6 and 7 out of the 15-odd trusts which were created for Atulya's benefit when he was still a child. Atulya being the youngest and the only son had always been doted upon by the entire family.

22. LILAVATI • A family fighting over a Rs 800-crore hospital. • battle rages between the two Mehta brothers for control of Lilavati, the premier five-star hospital at Bandra, 10-year-old documents are being dusted for minute examination. The latest spin comes with the Bombay high court directing that certain documents dating back to July 1995 and voluminous records of the minutes of board meetings from 1993 to 1997 be sent to an entity most people would not even know existed, to verify their genuineness. A bench, headed by justice J N Patel, has said the documents must be carted to Pune to the chief examiner of documents for the government of Maharashtra. This officer has been appointed commissioner of the court to verify the genuiness of three signatures of three trustees. To rule out forgery, the forensic laboratory in a series of"scientific tests" checks signatures as well as the age of the paper and the ink used. At the heart of the controversy is an original July 22, 1995, resolution of the board of trustees of the hospital appointing Vijay Mehta (76)—who is now running the hospital—as a permanent trustee.

23. Kishor Mehta (68), younger brother of Vijay Mehta, has alleged that signatures on the resolution were forged and that the resolution was passed in his and his wife, Charu's—who is a permanent trustee on the hospital trust—absence. He has filed a criminal complaint of forgery, cheating and criminal breach of trust against his elder brother and other trustees for this. Kishor, who had been out of the country for several years, has been removed as a trustee by the present board, a move which he, has challenged in court. He, his wife and his two sons Rajiv and Prashant have also challenged permanent trusteeship of Vijay in as many as four forums, including the city civil court and charity commissioner's office. The Mehta brothers are also diamond merchants. Kishor's son Rajiv is married to the daughter of diamond merchant and film financier Bharat Shah.

24. Dispute in bajaj family • Hit headlines in 2002, when Shishir Bajaj accused his elder brother , Rahul of trying to oust him from the chairmanship of Bajaj Sevashram, one of the group holding companies. • Shishir Bajaj approached the Company Law Board, seeking redressal in March 2003. The board had then suggested that the two sides should reach an amicable solution. • The December 2003 agreement was about transfer of shares at the agreed price. • The Shishir Bajaj family was to transfer Bajaj Auto shares to Rahul Bajaj at Rs 400 and the holdings in Bajaj Hindusthan was to be bought at Rs 67 and the difference was to be made good as part of the compensation deal

25. BIRLA FAMILY DISPUTES • Then again, there are feuds which, by their very nature – a difficult will etc – can play out in a bitter, sometimes dramatic, long-drawn battle, like the Priyamvada Birla case. On July 12, 2004, three generations of the Birla family had gathered at KK Birla’s bungalow for what most of them had expected would be a short non-event. • Priyamvada Birla, wife of the late MP Birla had expired only nine days back, and her adviser Rajendra Singh Lodha, the only non-Birla in that gathering, was to read out her will to family members. • By the time Lodha, the managing partner in one of India’s most famous chartered accountancy firms, finished reading out the will, the Birlas couldn’t believe their ears. The “purported will”, as the Birlas choose to call it even to this day, had cut out all the Birla family members from the MP Birla empire and bequeathed everything to Lodha.

26. MODI s • One of India’s biggest corporate houses, manufacturing lanterns ,sugar, soaps, textiles, carpets, cigarettes, cement, steel, tyres, photocopiers, fax machines, computers etc. • A massive industrial empire was built in Modinagar, first by the late Raj BahadurGujar Mal Modi and his brother KedarNath and several sons and nephews. • The world’s best and biggest, Xerox, Revlon, Lufthansia, Olivetti, ESPN, Walt Disney teamed up with Modi’s. • Differences between B K Modi and V K Modi over Modi Rubber. • The empire collapsed in 90s, the collaborators have either walked out or taken control of the companies and one after another the companies under Modis management turned sick. • Alcatel picked up Modi’s 49% share in Modi Alcatel Network, Xerox India took management control of Modi Xerox, Olivetti sold its share to Modi’s for a nominal price of 1$, German airlines Lufthansa’s joint venture ModiLuft had gone on belly and financial institutions were at logger heads with Modi’s on Modi Rubber etc. • The third generation Modis, have plans to stage a comeback by floating new ventures mostly in services like network marketing, call centre, FTV, on line lottery.

27. MURUGAPPA • Chennai-based Group is one of India’s largest and oldest family business groups with a turnover of Rs 15,907 crore ($3.14 billion). • Finance, General Insurance, Cycles, Sugar, Farm Inputs, Fertilizers, Plantations, Bio-products. • A well-diversified conglomerate, which was founded in 1900. It started manufacturing operations 60 years ago in Chennai. • The first bicycle in the country came from its factory. • Alagappan was the driving force behind the Group’s growth in the financial services. • He has been the executive chairman of the group for the past 15 years and has been involved in all the major changes the group has undergone. • It has bought and sold companies, seen bad times along with the good times.

28. SECRET FOR SUCCESS • How has the family remained together through all the ups and downs? • “We will continue to remain together. We don’t tread on each other’s toes. We try to avoid one family member reporting to another,” says Alagappan. “All of us cousins have played together and spent time together. That has not changed over the generations. There are ten youngsters in the next generation. Seven of them who are old enough are coming into the business. They are close, they stay connected and hopefully they will come to accept and work within the family discipline.” • Performance will be based on the basis of merit and not relationship. • Chairman of the company is an outsider. • Facilitates fairness in decision making.

29. Thank you