Falling shares, Ambani feud could scupper MTN deal

Reliance Communications Ltd has only days to reach an agreement for a tie-up with South Africa's MTN Group, but falling shares and a face-off between the Ambani brothers could scuttle a deal. Reliance Communications, controlled by Anil Ambani, is currently in exclusive talks with MTN to create a global 10 telecom company but this agreement ends on July 8.

However, in mid-June Reliance Industries, run by older brother Mukesh Ambani, claimed first right of refusal on India's No. 2 mobile operator, based on a deal signed when their late father's business was being split between the brothers. The bitter rivalry between India's two richest men has shown no sign of letting up. In an e-mail statement on Thursday Reliance Industries said it had invoked a dispute resolution agreement to settle the differences and invited Reliance Communications to participate, but this was immediately dismissed by a Reliance Communications spokesman.

"RIL has invoked the provisions of dispute resolution contained in the Non-Competition Agreement dated January 12, 2006, and has invited RCOM to participate in the process of mutual conciliation prior to the commencement of formal arbitration," India's most valuable listed company said. "This is only a sign of RIL's increasing desperation and frustration," a Reliance Communications spokesman said.

MTN, sub-Saharan Africa's top mobile operator, has about 68 million subscribers in nearly two dozen countries. Reliance Communications, the second largest mobile operator in India, has 48 million subscribers. "The tiff has almost certainly scuppered the deal," said Emeka Obiodu, a senior mobile technologies specialist at London-based research firm Global Insight.

"As long as there is any uncertainty about the legal validity of a deal, it is unlikely MTN will go through with it. And there is no point in extending talks if the situation will not change." Shares in Reliance Communications have shed a third of their value since the company said in May the firms were considering a potential combination. The company's shares fell 6.9 percent on Thursday.

Reliance Communications said last month the claim by Reliance Industries would not delay its talks with MTN. But traders in Mumbai earlier this week said concerns that Mukesh may throw a spanner into the works had helped push down the share price. The lower valuation of Reliance Communications, which now has a market worth of about $18 billion, down from nearly $27 billion when it first said it was in talks, could spoil the share swap that the two firms were reported to be discussing.

Media reports and a source close to the development had indicated the two firms were aiming at a reverse takeover, with a share swap that would give the Anil Dhirubhai Ambani Group the largest shareholding in MTN, and making Reliance Communications a subsidiary of MTN, sub-Saharan Africa's top mobile operator. "Ambani may also need more cash, now that valuation has fallen, and that will be difficult in this market," Shah said, adding the deal had a "50-55 percent chance" of going through.

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