New Delhi/Mumbai: By proposing to acquire the retail assets of Future Group (and not Future companies), the Mukesh Ambani-led Reliance Industries (RIL) has ensured that rival Amazon does not become its shareholder.
Amazon is a significant shareholder (49%) in a Future Group company, which owns about 10% stake in Future Retail, the largest outfit within the group in terms of turnover and which operates more than 1,000 stores under Big Bazaar, Fbb, Foodhall and Easyday Club brands.
According to the contours of the deal between Future Group and RIL, the former will merge 19 retail and its related back-end infrastructure companies, including Future Retail, into Future Enterprises. This company will then transfer the retail and supply chain businesses to two separate arms of RIL.
Had the deal involved the merger of Future Enterprises (excluding non-retail assets) with the arms of RIL, then Amazon would have got a stake in the two outfits. But with the proposed deal structure where RIL acquires Future Group’s retail assets and not its companies, the former has ensured that competitor Amazon is not its shareholder, said Bank of America Securities in a research report.
The Future transaction solidifies RIL’s dominance in India’s organised market, which is estimated to be worth $1.3 trillion by 2025 from $700 billion in 2019, according to a February study by Boston Consulting Group and the Retailers’ Association India. It also creates a large entry barrier by removing a sizeable player from the sector that competitors could have acquired to scale up, said a JP Morgan note.
Amazon reportedly had plans to increase its stake in Future Retail to 49%, but the deal didn’t materialise. The US e-commerce giant is currently the authorised online sales partner for Future Retail, but the future of this alliance after the deal with RIL couldn’t be ascertained. Both RIL and Future Group haven’t made any comment on what would happen to Future Retail’s existing partnership with Amazon.
In the new scheme of things, Amazon will have shares of Future Enterprises after the merger of Future Retail with the latter. Future Retail shareholders, according to the terms of the deal, will receive 101 shares with a face value of Rs 2 each of Future Enterprises for every 10 shares of Rs 2 each held.
After the retail assets are transferred to RIL, Future Enterprises will have interests in food and fashion product manufacturing, an insurance joint venture with Generali and textile partnership with NTC Mills. In this entity, RIL will invest Rs 1,600 crore by way of preferential shares and warrants convertible into equity, to acquire a 13% interest. In a presentation released to the stock exchanges, Future Enterprises said that on the manufacturing businesses that would remain in the company there would be added volumes now from RIL’s retail stores and would also gain from JioMart’s digital platform. However, the company makes no mention of Amazon in the presentation.