Reliance and Cap Gemini. Huh?

Posted by: Manjeet Krpalani on February 17, 2008

The latest rumour about Reliance Communications bidding for Cap Gemini has people scratching their heads. Reliance Communications, headed by Anil Ambani, does media and telecom. Cap Gemini does software and tech outsourcing as also tech and business consulting. There’s no synergy between the two.
But it suits both companies to be in the news.
Cap Gemini is the least high profile among the top tech Western firms, way, way behind IBM, Accenture, EDS and CSC. It has operations in India, but without the heft of its larger peers. A couple of years ago, there were rumours that Indian tech giants Infosys, then Wipro, would bid for Cap Gemini, as it would be a perfect buyout candidate for Indian firms looking to go global. But nothing happened. The rumours kept resurfacing. Cap Gemini,it appears, is like one of those eligible singles, always being teamed up with various suitors in the gossip columns, but never an engagement announcement. These rumours will remind the market that Cap Gemini is around, even if it’s in the shadows.
Reliance Communications is a young Indian company with a big ambition of being the most eligible, hip player in the business.

Founder Anil Ambani has longed to get into the software business but lacked the experience and the "start-in-the-garage" intuition that that Silicon Valley-type of business requires. So instead, he has a media, telecom, finance and power business. But Anil Ambani appears strapped for cash just now - he's been heading to the stock market to raise money for both his power and telecom businesses. And he's already been burnt - the $3 billion Reliance Power IPO, announced in January before the US sub-prime bust and recession announcement, listed only in February, in a new, unfavourable environment. The stock sank as soon as it listed, closing down 17% on the first day of trading.
It seems unlikely that Ambani, known as a sharp businessman, would spend money on software - a trophy business he doesn't need nor has the management bandwidth to support just now. And after the Reliance Power listing debacle, investors are unlikely to support him for a software acquisition.
But the Cap Gemini rumor will probably work wonders for the Reliance stocks. It could make some investors feel that Ambani is still in the game, and hasn't fallen off his edge.