Reliance Industries Limited – Unlocking Shareholder Value By Nilanjan Sen, Ho Kim Wai & D. G. Allampalli

Abstract

The case depicts how Dhirubhai Ambani founded the Reliance Group with only Rs. 50,000 in late 1950 and grew it into an US$17 billion conglomerate in a span of fifty years. Known for 'Betting on Impossible' and 'Infectious Impatience', the founder completed large expansion projects in record time, acquired related businesses and ventured into new businesses to create the Reliance Group. In 2005, it comprised of textiles, petrochemicals, telecom, power and financial services businesses. He tapped domestic investors to fund expansion and growth, created an equity cult among Gujarati and other Indian investors, and built a tradition of rewarding loyal shareholders. For creating wealth of Reliance shareholders during a regulated Indian economic regime, the founder was awarded the Wharton Business School Dean's Medal in 1998.

Since the early 1990s, the founder co-managed the Reliance Group with his two sons, Mukesh and Anil, for a decade. Following the founder's demise in 2002, differences between the brothers led eventually to a need for division of corporate assets. In November 2005, the share price of Reliance Industries Limited (RIL), the Group's flagship company, tumbled following the break-up announcement. The Board of RIL hoped to unlock the value of acquired businesses and new ventures by rewarding loyal shareholders with stakes in new businesses. However, analysts were unsure to guess the size of returns to investors due to uncertainty of the drop in RIL's value and valuation of RIC, an unlisted telecom company in the Group.

Issues: Valuation of a diverified large business, demerger of corporate assets and investor value creation.

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