He's too heavy, he's my brother: why India's family firms are fated to become factions

As the billionaire Ambanis fall out again, Richard Orange reports from Mumbai on the trail from the hothouse to rival business empires
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The Independent Online

When Jeffrey Archer visited India last month to promote his latest potboiling novel, Prisoner of Birth, the country's media couldn't get enough of him. And now that the struggle between the wealthy Ambani brothers has broken out again with renewed fury, the cause of such fascination is clear. The combination of high stakes, high finance, sibling rivalry and family honour, it seems, is as much as part of India's business life as it is one of Lord Archer's novels.

The Mittal family, the Bajaj family, the Birla family and the Modi family have all endured splits. But the clash between Mukesh and Anil Ambani – who rank just behind steel magnate Lakshmi Mittal in fifth and sixth place on the Forbes global rich list – has been the Indian business story of the decade.

The two began to fall out after the death of their father in 2002 and a battle for control raged until the division of the family business in 2005. For six months before that, Mukesh had fought to keep Reliance Infocomm, the mobile phone firm that he helped to grow, only agreeing to cede it to Anil when their mother Kokilaben intervened.

The two rival business groups have since expanded at a dizzying pace – Mukesh in oil and gas, chemicals, textiles and retail, and Anil in telecoms, power, finance and entertainment. But on 12 June, Mukesh broke the truce, moving to block his younger brother's grandest project: a $60bn (around £30bn) merger of the mobile firm with South Africa's MTN to create the world's seventh largest mobile phone company.

Mukesh's Reliance Industries conglomerate claims pre-emption rights over Reliance Communications, Anil's mobile arm, and is threatening to consign the deal to a lingering death in India's painfully slow court system.

Nigel Nicholson, is a professor at the London Business School, whose latest book, Family Wars, looks at feuds within business families. He argues that splits and rivalry are inevitable in a country where big businesses are run on family lines, with sons groomed as successors from an early age.

He says: "This happens the world over, but cultures that try to create an obligation to active partnership are courting trouble."

But other groups have kept these differences quiet. When Lakshmi Mittal (right) split off the international arm of the family steel business in 1995, going against the wishes of his father Mohan Lal Mittal, he was estranged from his younger brother Pramod for the rest of the decade, it turns out. But this never made it into public view.

Mukesh Ambani, on the other hand, aired Reliance Industries' "ownership issues" in a TV interview in 2004. And the bitter lobbying campaign waged in the media by the brothers then went on for six damaging months.

More recently, the Bajaj family patriarch Rahul engineered an even smoother split, overseeing the relisting of two arms of his company – Bajaj Auto and Bajaj Finserv – as separate companies at the end of May, with his sons Rajiv Bajaj heading the former and Sanjiv the latter.

Gita Piramal, an author and well-known analyst of India's family-owned companies, says the Bajaj split is an object lesson in how it should be done.

"They've kept it really quiet. They don't go out in public – didn't speak to the media. I think the entire 15 years [under Rahul] has been almost a model of how to manage it."

Now Lakshmi Mittal is giving the Ambanis a lesson in how to keep sensitive family business issues out of the spotlight. His steel company, ArcelorMittal, is now the prime candidate to take control of Kremikovtsi Steel, Bulgaria's largest steel plant and one of the most ill-fated of the investments made by Pramod in his attempt to follow Lakshmi into the global steel business.

A source working on the insolvency says that bankers to Global Steel, Pramod's company and the owner of Kremikovtsi, want an out-of-court settlement that would allow Global Steel to keep at least a portion of the hundreds of millions it has invested in exchange for its 71 per cent equity stake.

"With an insolvency they will get zero," he says. "Maybe with an out-of-court settlement, they can do better than that."

But ArcelorMittal officials declared earlier this month that they wanted to buy the assets only after Kremikovtsi had been pushed into insolvency.

In most families, letting one of your younger brother's prime businesses go bankrupt so you can then buy it up from the receiver would raise sensitive issues. But any bad blood, if it exists, has been kept from the public eye.

A friend of Lakshmi and Pramod, and their other brother Vinod, says that at a function in honour of their father *London last autumn, relations had seemed good. He adds: "They're quite civil, and whenever you speak to Pramod and Vinod, they will always speak in very high terms of their elder brother."

That's remarkable given the pressure that must have been put on the relationship by the sharply contrasting fortunes of their respective steel empires.

Arcelor-Mittal now produces more than three times as much steel as Nippon Steel, its nearest competitor in the global steel industry. Pramod's two companies, Global Steel Holdings and Ispat Industries, on the other hand, don't even register among the top 30. Pramod's failure to stem the losses at Kremikovtsi is only the most recent in a string of troubles faced by Global Steel.

Serbia's government has annulled Kremikovtsii's 2006 acquisition of Magnohrom, a producer of the magnesite mineral, and earlier this year the Nigerian government cancelled its concession to run the 2.2 million-ton Ajaokuta Steel and the National Iron Ore mining company in Nigeria. Global Steel also faced some very public difficulties paying some of the Indian employees that it had stationed internationally.

Pramod is now sidelining the company. Its most valuable assets – iron ore and coal mine leases in Colombia and Brazil – will now be developed by new operating firms in which Ispat will be the major shareholder.

The lack of open conflict between the two Mittal brothers is helped by the continuing influence of the father.

A former senior Mittal employee says: "Their father told me that Lakshmi and Pramod are equal geniuses. But he said that Lakshmi Mittal has the habit of reading each and everything before signing it. Pramod is more trusting."

As for the Ambanis, there can be few fathers more difficult to live up to than Dhirubhai Ambani – a driven business visionary who would let nothing stand in the way of achieving his ambitious schemes. Dhirubhai hot-housed his sons from an early age to succeed him, giving both of them high-profile roles in their early twenties.

In just over 10 years, Lakshmi has leapt into an entirely different league from his brothers. By contrast, the two Ambanis' businesses are now more equally matched. And both have ambitious plans to turn their Indian empires into global giants.

The next instalment in the Ambani saga will show whether the rivalry between the two continues to drive both to still greater achievements – or whether, like a character in a Jeffrey Archer novel, only one can succeed.