Future Retail – The Damsel in Distress

 As we all know, the great lockdown caused by global pandemic has impacted many businesses. It led to supply chain disruptions, stoppage in manufacturing, and even closing down of businesses. Future Retail was not new to this. Even though they are one of the top retailers in India, they were having a hard time meeting their debt obligations during this period. In August, Future Group led by Mr. Kishore Biyani entered into an agreement to sell its retail, wholesale, logistics, and warehousing to Reliance Retail (a subsidiary of RIL group) for nearly Rs. 25,000 Crore. This is a crucial deal for Future Retail Ltd. (FRL) as it could save them from going bankrupt. Additionally, this would also help RIL to increase their retail presence pan India. So, it all fits perfectly, isn’t it? But wait- “Kyun ki.. Picture Abhi Baki hai mere dost!”

The Amazon Plot twist! 

After learning about the Reliance- Future Retail deal, Amazon in October 2020 said that this deal is violating their agreement from 2019 with Future group. In 2019, Amazon had acquired a 49% stake for Rs. 1500 crore in Future Coupons Ltd (FCL) - which is an unlisted company of the Future group. FCL is the promoter entity of FRL which hence allows Amazon to acquire a 3.6% stake in FRL, indirectly. As a part of the agreement, Amazon was granted a call option allowing them to acquire the promoter’s shareholding in FRL between the 3rd to 10th year of the agreement. This agreement also restrains FCL to transact with RIL. Future Group discussed or disclosed nothing about the Reliance acquisition with Amazon which is why the global e-commerce giant feels wronged by the Future group. 

The Clash
Upset over this, Amazon went to Singapore International Arbitration Court (SIAC) which gave an interim award in their favor. FRL and Reliance were asked to hold their deal on October 25th. Reliance responded to this by saying that their acquisition deal with Future retail is fully enforceable under Indian Law and they intend to complete the deal without any delay. NSE warned the group over untimely disclosure about the arbitration proceedings. However, recently FRL has agreed to co-operate for the SIAC proceedings. But Amazon did not just stop there, it went ahead and approached the Competition Commission of India (CCI), SEBI, and the Stock Exchanges to halt the Reliance - Future deal. 

Allegations over disclosures and insider trading have been made by the e-commerce giant. The CCI gave a nod to the Reliance - Future deal but this is just the beginning. The future group decided to plea Delhi High Court to restrain Amazon from interfering in the asset acquisition of FRL. 

Amazon stands firm on its stance whereas Future Group argued that Amazon had a deal with FCL and not FRL. Further, Amazon’s argument about holding a stake in FRL indirectly violated the FDI laws which allow only 10% investment by a Foreign entity in the retail sector. 

Hence, they argued that Amazon has no say in this acquisition deal. Reliance in a written statement submitted to the High Court recently says that Amazon had knowledge of the deal since June 2020. They attached a series a WhatsApp chat between Future’s promoters Kishore Biyani, Rakesh Biyani, and Amazon’s Chief Amit Agarwal. Amazon denies by saying that they learned about it when it was announced on the Future’s website. The plea in the High Court and Singapore Arbitrator continues and will unfold in the upcoming days.

Is there a Happy ending to this story?
 Party 1: Future Retail The Reliance deal is Future Retail’s best shot at survival at the moment. If this deal goes south then FRL will go into liquidation causing job loss of over 29,000 employees and closing of 1500 outlets spread across India. It is stuck between the two retail giants and above that is in a make or break situation. 

Party 2: Amazon Amazon has expressed their disappointment over the SIAC order not being respected in India and how it would be an eye-opener for businesses around the world while doing business in the Country. It is being said that Amazon is just trying to block this deal in order to stop Motabhai from gaining a competitive edge over it. Reliance’s expanding offline retail operations is a threat to businesses like Amazon and Flipkart. Hence, winning this ruling might slow down Ambani’s plans.

Party 3: Reliance Retail Reliance is already the country’s biggest brick-and-mortar retailer. This acquisition will not only benefit Future Retail but will also put Reliance Retail Ltd way ahead in the retail space. Being said that, Motabhai can lead the race even without this deal so this is not the only option for them but it is a feasible one. Future retail has the full support of Asia’s richest man. Overall, it looks like the Big Billionaire Boys – Bezos and Ambani are not just fighting for Future Retail but also for the throne of India’s Trillion dollars Retail Industry.

The outcome of this legal brawl is going to change the course of this industry which is growing at a faster pace. Now whether the Future retail is the Damsel in distress? Is RIL the knight in shining armor? Or is the Amazon a villain of the piece? Only time and the ruling can tell. All we can say is stay tuned to this story as the future beholds some historic events worth witnessing.