Reliance acquired Future Group for 24,713 Crore, the acquisition took place through Edelweiss Financial Services and the news came out on 29th August, 2020.
The acquisition meant a big deal as buying out assets of Future Group included buying out its subsidiaries Future Retail, Future Enterprises, Future Consumer, Future Lifestyle Fashions, Future Supply Chain, Future Market Networks.
Future Group was founded by Kishore Biyani in 2000s and gave birth to brands such as Big Bazaar, Clarks, Lee Cooper, The Food Hall, FBB, Nilgiris, Indigo Nation etc. It also acquired 50.1% stake in Aditya Birla Group’s pantaloons.
Reliance Retail has 11,784 stores and has revenue of 1,62,396 Crore annually and Future Retail has 1800 stores with annual revenue of 30,000 Crore. So leading Reliance Retail got more of the market capture of India’s retail sector. After the acquisition Reliance Retail’s annual revenue would be 3 times of all other Retail revenues (DMart, Spencer, Titan, ABFRL, Shoppers Stop, Trent, Raymond) combined!! Furthermore, the acquisition means that Kishore Biyani and his family cannot enter retail business again for the next 15 years, all the assets of Future Group belong to Reliance, Leaving Amazon with company that manufactures Food and Fashion equipment – Textile partnership with NTC mills – Insurance Joint Venture with Generali.
In 2019 Amazon acquired 49% in Future Group’s holding company “Future Coupons” (For 1500 Cr). Future Coupons has a 10% stake in Future Retail. So, Amazon has about 5% stake in Future Retail. In this deal, Amazon was to acquire 26% in Future Retail in 3 to 10 years from now and was entitled to the “First right of refusal” which means Future Group cannot sell its assets to competitors like Google, Reliance, Flipkart, Walmart, Alibaba, Softbank, Target, eBay, PayTm, Zomato, Swiggy etc. without Amazon’s consent. Amazon has similar stakes in Shoppers Stop and More Retail (Aditya Birla Group) which indirectly prevents local companies from expanding and being tied up to Amazon for funding.
So, debt of Future Group can only be solved by Amazon and no other competitors. With this deal it was signed in a clause that interest earned over the debt from April, 2020 onwards would also be paid off and thus benefitting Bank of India, Axis Bank and Bank of Baroda. This deal was a win-win to Indian companies where Banks also got back the loan they sanctioned with interest, Future Group and Biyani become debt free and Reliance becomes a market giant, but like always Foreign investors (Amazon) use their legal power to annihilate Indian businesses.
However, with this deal Future Group broke that clause as debt ridden Biyani (Debt of ₹12,778 crore) needed Ambani to rescue him. Later, Amazon took Future Group to SIAC (Singapore International Arbitration Centre) court to get the deal called off. This case was given trial where former General solicitor Harish Salve represented Future Group and Gopal Subramanium represented another former General solicitor with VK Rajah Singapore’s former attorney general. VK Rajah gave a verdict that the sale is put on halt till Amazon gives permission, this decision will be followed for 90 days and then a final order will be passed. On the other hand, Competition commission of India approved the Reliance bid.
This is clearly a battle between Indian Retail King (Mukesh Ambani in Reliance) and World’s Retail King (Jeff Bezos in Amazon).
There are four possible outcomes of this:
1. Reliance will fast-track permission and complete the deal.
2. Amazon accepts to agree a penalty from Future.
3. Amazon finds other partners for the deal.
4. The deal gets delayed and Future Retail gets closed.
Rivals are already banding together under the same clause proposed by Amazon (Right to first refusal)
a. Flipkart bought 8% in Aditya Birla Fashion and Retail. (1500 Crore)
b. Tata bought a majority stake in Big Basket (700 Million) and stake in 1mg (200 Million)
Strangely - In September, 2019 Reliance offered Amazon a 40% stake in Reliance Retail for 40 Billion dollars to which Amazon rejected the offer as they felt the price was too high.
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