Reliance ADA Group (ADAG) and Reliance Industries (RIL) have scrapped all non-compete agreements signed at the time of the split of the Reliance Group, which, in particular give the younger (Anil) Ambani, exclusivity over in emerging segments like Telecom and Media. A new non-compete agreement has been signed, under which RIL will not enter the Gas Based Power Generation Business until March 31, 2022, though it can operate its captive gas based power plants. The important statement:

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

At the time of the split, Mukesh Ambani had received control over Reliance Industries and IPCL, covering petrochemicals, oil and gas exploration, refining and textiles, while Anil Ambani had received control over Reliance Infocomm (Reliance Communications), Reliance Capital and Reliance Energy, as a part of the Reliance Anil Dhirubhai Ambani Group (R-ADAG). Reuters has a timeline, here.

On Telecom

Elder brother Mukesh Ambani had been instrumental in launching the Reliance Group’s telecom business, Reliance Infocomm, only to cede ownership to Anil Ambani at the time of the split. Since the split, he has refrained from investing in teleom and media business, investing only in an Indian Premier League Cricket team (Mumbai Indians) in the sports space. Of the new telecom operators, Datacom, which has launched services as Videocon, has in the past been linked with Mukesh Ambani – a member of India’s Parliament had alleged as much (source: MoneyControl) – though the rumors were denied. Datacom hasn’t yet raised foreign investment, and wasn’t able to win any 3G spectrum in the recently concluded auctions, though it was a bidder. RCOM won spectrum in 13 circles.

Additionally, RIL had put an end to RCOMs hopes of a merger with South African operator MTN. According to the Indian Express, stating that it had the first right of refusal to buy a controlling stake in RCOM. ADAG disputed this claim, and there was apparently an issue of interpretation of the agreements at the time of the split. While the non-competes have been scrapped, it isn’t known whether RIL still has the right of first refusal. RCOM competitor Bharti Airtel has since inked a deal to buy the African operations of Zain Telecom.

On Media

ADAG entered the media space in a big way, launching Reliance BIG Entertainment, acquiring a majority stake in Adlabs (now Reliance Mediaworks), launching FM Radio stations (BIG 92.3FM), film production (BIG Pictures), gaming (Zapak), DTH (BIG DTH) and had plans to launch TV channels, among many other media related businesses. A list of BIG businesses here.

It was once rumored that Mukesh Ambani had backed the INX business, launched by former STAR CEO Peter Mukerjea, but that was denied by INX. INX News was subsequently acquired by the Indi Media (by Nai Dunia Group founder Vijay Chhajlani), while its general entertainment channel 9X has was acquired by Zee.

A Question

A question we received from one of our readers, regarding todays announcement, still remains – is this move co-operative or competitive? Is RIL going to enter the media or telecom space, or stay out and work together with ADAG? We think they’ll compete, but one can only tell by looking at the agreement that has been signed. The board may have agreed, but frankly, shareholders have a right to scrutinize the new and old agreements between public listed companies that they own a part of.

The Official Statement By Reliance Communications:

Reliance Industries and Reliance ADA Group hopeful and confident of creating overall environment of harmony, co-operation and collaboration between the two groups

* All existing non-compete agreements between the two groups executed in January 2006 cancelled

* A new, simpler non-compete Agreement executed limited to only Gas Based Power Generation

* RIL and Reliance Natural Resources Ltd. will expeditiously negotiate Gas Supply arrangements, as per Supreme Court order, and hope to conclude negotiations very soon

* Both groups to benefit from enhanced operational and financial flexibility, and greater ability to participate in high growth sectors of the Indian economy

* Measures eliminate room for any further disputes between the two groups, on matters relating to the scope and interpretation of the non-compete obligations

Mumbai, May 23, 2010: Reliance Industries Ltd. (RIL), led by Shri Mukesh D. Ambani, and Reliance ADA Group companies, Reliance Communications Ltd., Reliance Infrastructure Ltd., Reliance Natural Resources Ltd., and Reliance Capital Ltd., led by Shri Anil D. Ambani, have today approved and signed an Agreement cancelling all existing non-compete arrangements entered into between the two groups in January 2006 pursuant to the scheme of reorganization of the Reliance Group, and entered into a new, simpler non-compete Agreement with respect to only Gas Based Power Generation.

The above Agreements have been approved by the Boards of Directors of RIL and the respective Reliance ADA Group companies.

The cancellation of the existing non-compete Agreement as above 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. However, RIL has agreed not to enter into the Gas Based Power Generation Business for the period upto March 31, 2022. An appropriate exception has been made in respect of RIL’s captive gas based power plants.

These developments will eliminate any room for any 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) will expeditiously negotiate Gas Supply arrangements, in accordance with the order of the Hon’ble Supreme Court of India, and hope to conclude these negotiations very soon.

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 the shareholders of both groups.

Reliance Industries and Reliance ADA Group are committed to fulfilling the vision of their legendary founder, Shri Dhirubhai Ambani, and contributing to the future growth of the Indian economy.