Major US e-commerce company Amazon has served the Future Group with legal notice for reaching an agreement with Reliance Industries (RIL), citing its non-compete agreement with the chain led by Kishore Biyani. According to the notice, the Future-RIL transaction cannot proceed without Amazon’s approval in view of the non-compete clause previously entered with the retail group.
A top industry source said the notice was unexpected as Biyani had first approached Amazon to acquire Future Group companies before defaulting on its lenders and suppliers. “It was only after Amazon said no that the Biyani group started talking to Reliance,” said a banker close to development. “Anyway, RIL bought the assets and not the company,” he said.
On August 29, Reliance Retail Ventures Limited (RRVL) had announced an agreement to acquire all of the Future Group’s retail, wholesale, logistics and warehousing businesses on a going concern basis for Rs 24,713 crore. The lenders, who had substantial exposure to the Future group, had supported the transaction. After the deal, Future Enterprises Ltd (FEL), in which all Future group companies were merging, was left with the consumer products business and stake in two insurance companies.
“The transaction was announced in August and it is surprising that Amazon is taking legal action now,” said another source. Amazon had acquired in December 2019 a 49 percent stake in Future Coupons Ltd, a promoter entity, for Rs 1,430 crore. Future Consumer (FCL), in turn, owned 7.2% of Future Retail Ltd (FRL). The entire proceeds were reinvested in Future Retail. But the pandemic hit Future Retail hard. Zero cash flow and multiple store closings during the first few months of closure prevented the company from recovering.
“Amazon lost about $ 193 million on its future investment. The legal action against Future is to isolate themselves from any class action lawsuit in the United States, since shareholders can ask why they lost money in Future, ”said another banker.
When contacted, spokespersons for Future Group and RIL declined to comment on the matter.
According to sources in the e-commerce industry, when Amazon invested in Future Coupons last year, it had received certain rights under contractual agreements. The restrictive non-compete clause was one of them.
An informed executive noted that when Reliance and Future entered the deal, Amazon was not kept informed. For the past few months, Amazon has tried to reach the Future Group without any success, he said.
“So, Amazon has no choice but to provide them with a legal notice since they have breached the contractual agreement,” added the executive.
The e-commerce giant led by Jeff Bezos already owns 49 percent of More, a brick and mortar supermarket chain. Samara Capital owns the rest of the capital stock in More. They both made a $ 450 million investment in 2018 and followed up with an additional $ 37 million last month.
Currently, only 7 percent of the $ 1.2 trillion retail market is online.
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