Analysts say the deal marks the company’s transition from its energy business to becoming a consumer-focused telecommunications and retail company.
The oil-to-telecommunications company, which is boosting its presence in the retail segment through Reliance Retail, said the acquisition is being made as part of the scheme in which Future Group is merging certain companies doing the aforementioned businesses into Future Enterprises ( FEL).
In a separate press release, FEL said its drop sale would include key formats such as Big Bazaar, fbb, Foodhall, Easyday, Nilgiris, Central, and Brand Factory.
Reliance Retail and Fashion Lifestyle (RRFLL) and RRVL will take care of certain loans and current liabilities related to the business and will discharge the consideration of the balance in cash, said FEL.
Under the scheme, the retail and wholesale business is transferred to RRFLL, a wholly owned subsidiary of Reliance Retail Ventures, along with the logistics and warehousing company.
RRFLL also proposes to invest Rs 1,200 crore in the preferred issue of FEL shares to acquire 6.09 per cent of the shares post-merger, and Rs 400 million in a preferred issue of stock guarantees which, upon conversion and payment of the balance, 75 percent of the issue price, RRFLL will acquire an additional 7.05 percent of FEL.
RIL said the acquisition of Future Group’s retail, wholesale and supply chain business complements and makes a strong strategic fit in Reliance’s retail business.
“The Future Group was under pressure due to the accumulation of debt and service problems, and the sale of the stake to RIL was the best option for them, as they were forced to sell assets. RIL had a war chest after the mega fundraiser. For RIL, now they don’t need to build the warehouse, logistics and wholesaling unit, ”said Hemang Jani, director of equity strategy, brokerage and distribution at Motilal Oswal Financial Services.
Future Group’s net debt burden had accumulated at around Rs 12,989 crore with all of the developer’s share pledged to the lenders.
On August 24, the group managed to avoid a default by paying 100 million rupees or $ 14 million on its foreign bonds.
“The key businesses for RIL are now telecommunications and retail, and energy remains a legacy business. This also means that the oil and gas business will only contribute 20 percent to the SOTP (sum of the parts) valuation, ”Jani said, adding that RIL shares could see a rally on Monday.
Ajay Bodke, CEO-PMS, Prabhudas Lilladher, said: “RIL is confidently marching towards its goal of emerging as a consumer-centric game, with Jio’s digital platform and now an even stronger retail business.”
“The market had more or less discounted the deal, and broad contours were also known. It is a rescue for the deeply indebted Future Group and its promoters, ”he added.
Bodke said that the market expects further induction of strategic and / or financial partners into the retail business.
“It will come as no surprise if we also see a value unlock in the retail business,” he said.
He noted that the deal adds to Reliance Retail’s offline presence and they gain access to an extensive network, logistics and warehousing businesses and is a good fit.
“It will be interesting to know what happened to Amazon’s minority stake in one of the Future Group companies,” he added.
The agreement will help Reliance Retail accelerate its support to millions of small merchants to increase their competitiveness and improve their revenues during these difficult times, the firm said in a statement.
“We look forward to continuing the growth momentum of the retail industry with our unique model of active collaboration with small merchants and Kiranas, as well as large consumer brands,” said Isha Ambani, director of Reliance Retail Ventures.
The company said that the composition of Future Group’s portfolio in apparel, general merchandise and consumer goods brands will allow a broader offering to its customers.
The deal could help RIL in its deep discount strategy for JioMart, the e-commerce company, which launched two months ago and competes with Amazon and Flipkart.
Experts believe that if RIL controls the entire value chain, they can use their bargaining power to lower prices or introduce their cut-price versions to earn higher margins.
This acquisition is subject to SEBI, CCI, NCLT, shareholders, creditors and other necessary approvals, he added.
The Indian retail market is expected to grow 8 percent compounded annually to $ 1.32 trillion for fiscal year 26 from $ 822 billion today.
Within this, organized retail is forecast to grow at 17 percent compounded annually to $ 230 billion from $ 89 billion, as organized retail’s share will increase from 11 percent to 18 percent of the market.
On Friday, RIL shares closed 0.2 percent higher at Rs 2,115.60 on the BSE, while the benchmark Sensex index rose 0.9 percent to 39,367.31 points. They have jumped 144 percent from their March lows.
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