Tuesday, July 24, 2007

The McKinsey Annuity

Global consulting firm McKinsey advises businesses and usually gets paid. It might as well be its first, having to move the Bombay High Court against two of its big ticket clients [Reliance Industries (RIL) and Reliance Communications (RCom) ] for non-payment of its bill - in this case a fee of Rs. 270 million ($ 6.7 m). As events went, after patriarch and founder Dhirubhai Ambani’s death, the Reliance group had split right down the middle between the two feuding sons' camps in June 2005. Elder son Mukesh Ambani got Reliance Industries (petrochemical, oil and gas businesses), younger Anil settled for the group’s power, telecom and financial services businesses. McKinsey had signed an agreement back in 2001 with RIL before the split, to roll out RCom.

The terms had also offered McKinsey some top ups if RCom revenues were to cross the high watermark of Rs 10,000 crore ($2.46 b) which it did last year. But when McKinsey presented its claim to RCom, it refused payment stating that the deal was between RIL and McKinsey and RCom is not a party to it. Neither would RIL pay up since RCom has since been spun off and now it belongs to the Anil Ambani camp, with which it stands daggers drawn on several issues.

Tricky situation for McKinsey. So it will be for the High Court Judge too, I guess. Further the $ 6.7 m Mckinsey bill also looks more like a milestone based annuity to me…
Won’t be surprised if the Judge refers it to Insurance Regulator for fairness opinion…!

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