Mukesh Ambani structured the deal with the Future group in such a way that Amazon stays away from getting a stake in Future Enterprises or Reliance Retail.
New Delhi: Last year, Amazon acquired a 49% stake in Future Coupons, a Future Group company for an undisclosed amount. As part of the agreement, Amazon obtained the right to acquire Biyani’s stake in Future Retail at a future date. “As part of the agreement, Amazon has been granted a purchase option. This purchase option allows Amazon to acquire all or part of the Promoters’ shareholding in Future Retail Ltd, and can be exercised between the third and the tenth year, in certain circumstances, subject to applicable law, “said the company at an exchange presentation at that time.
But Mukesh Ambani structured the deal with the Future group in such a way that Amazon stays away from getting a stake in Future Enterprises or Reliance Retail. If Reliance Retail had acquired Future companies directly, rather than acquiring Future Group retail assets, then probably Amazon could also have obtained a stake in Reliance Retail.
Future Coupons owns approximately a 10% stake in Future Retail, which is the largest entity within the group in terms of turnover and which operates more than 1,000 stores under the Big Bazaar, Fbb, Foodhall and Easyday Club brands.
According to the details of the agreement between Future Group and RIL, Future Enterprises will merge 19 retailers and their related back-end infrastructure companies, including Future Retail, into itself. This company will then transfer the retail and supply chain businesses to two separate branches of RIL.
If the deal had involved the merger of Future Enterprises (excluding non-retail assets) with the RIL branches, then Amazon would have obtained a stake in the two companies. But with the proposed deal structure in which RIL acquires Future Group’s retail assets and not its companies, the former has ensured that competitor Amazon is not its shareholder, the former. India Times cited Bank of America Securities in an investigative report.
The Future transaction solidifies RIL’s dominance in India’s organized market, which is estimated to be $ 1.3 trillion by 2025 from $ 700 billion in 2019, according to a February study by Boston Consulting Group and the Retail Association of India. The deal also creates a large barrier to entry by eliminating a major player in the sector that competitors could have acquired to scale, JP Morgan said in a note.
According to the ToI According to the report, Amazon had plans to increase its stake in Future Retail to 49%, but the deal did not materialize. The US e-commerce giant is currently the authorized online sales partner for Future Retail. But the future of this alliance remains to be known. Neither RIL nor Future Group have commented on what would happen to Future Retail’s existing partnership with Amazon.
Once the retail assets are transferred to RIL, Future Enterprises will only have food and fashion manufacturing, an insurance joint venture with Generali, and a textile partnership with NTC Mills. RIL will invest Rs 1,600 crore, through preferred shares and convertible warrants, to acquire a 13% stake in the residual Future Companies.
Under the new scheme of things, Amazon will get shares of Future Enterprises after Future Retail’s merger and other assets with the latter. Future Retail Shareholders, in accordance with the terms of the agreement, will receive 101 shares with a par value of 2 rupees each from the Future Companies for every 10 shares of 2 rupees each.
