Survey says: This could be a deal killer!

An ongoing feud between Reliance Communications Ltd. (RCom) chairman Anil Ambani and his brother is threatening to disrupt the Indian carrier's merger negotiations with Mobile Telephone Networks (MTN) .

Reliance Communications (previously Reliance Infocomm) was formed in 2005 when Anil Ambani and Mukesh Ambani carved up the Reliance empire, which included telecom, oil, and financial services, after a rivalry developed between them when their father died in 2002 and left no will.

When lacking a will, the sibs developed some ill will toward each other. An agreement was hashed out by their mother, under which Anil Ambani took the telecom, energy, and financial services assets while Mukesh Ambani took the oil and petrochemical business to form Reliance Industries. (See Reliance Emerges With Q3 Profit.)

Reliance Industries is now stepping into talks between Reliance Communications and African mobile operator MTN. Reliance Industries says it has the right of first refusal on a majority stake in the Indian telco, prompted by reports that the merger would involve a reverse takeover, with Anil Ambani taking a controlling stake in the merged carrier. (See MTN M&A Latest.)

In a statement released late Friday and filed with the stock exchange Monday, Reliance Communications proclaims in bold font: "RIL's claim is legally and factually untenable, baseless, and misconceived."

Reliance Industries apparently bases its claim on a 2006 document, "which was unilaterally signed only by RIL's officials, when RCOM was under RIL's control, under a procedure which the Hon'bleBombay High Court, vide its judgement dated 15th October 2006, has held to be 'unfair and unjust.'"

For its part, Reliance Industries says it "has in good faith" notified both Reliance Communications and MTN of its intentions to challenge the potential merger.

A combination of RCom and MTN would create a carrier with close to 120 million mobile subscribers in 22 countries, in addition to the international data services provided by Global Cloud Xchange . Reliance Communications reported a net income of $1.3 billion for the financial year ended March 31 and MTN posted profits of $1.5 billion for its financial year at the end of December.

Reliance Communications reckons the threat to take the matter to court is purely out of spite: "RIL's claim is born out of mounting despair and frustration at Reliance ADA Group's continuing successes," it says. "Reliance Communications dismisses RIL's claim with the contempt it deserves."

The rivalry between the two brothers extends to the Forbes rich list, where Mukesh Ambani ranks fifth with a fortune of $43 billion, just beating out his younger brother's $42 billion in sixth place. Mukesh Ambani was the second biggest gainer on the list, racking up $22.9 billion in the last year. The first? Anil Ambani, who added $23.8 billion to his fortune.

MTN seems to be staying out of it for now. MTN spokeswoman Nozipho January-Bardill told Reuters, "As far as we are concerned nothing has changed."

Reliance Communication’s share price closed INR8.25 (1.52%) lower at INR535.10 on the Bombay Stock Exchange, having lost as much as 2.3 percent in earlier trading. Reliance Industries closed 0.73 percent higher at INR2,284.85.

— Nicole Willing, Reporter, Light Reading