Billionaire Mukesh Ambani-owned India’s largest retail chain, Reliance Retail Ventures Limited (RRVL) has reached an agreement with Future Group to acquire the latter’s retail and wholesale business as well as its logistics and warehousing business for Rs 24,713 crore (US$3.4 billion).
The acquisition has been done as part of the scheme in which Future Group is merging certain companies including Future Retail, Future Lifestyle Fashions, Future Consumer, Future Supply Chains and Future Market Networks into Future Enterprises Limited (FEL).
Subsequently, the retail and wholesale undertaking will be transferred to Reliance Retail and Fashion Lifestyle Limited (RRFLL), a wholly-owned subsidiary of RRVL. At the same time, the logistics and warehousing undertaking will be transferred to RVVL.
The widely anticipated acquisition will consolidate Ambani’s position in the Indian retail industry that is witnessing huge investments by multinational players in the e-commerce segment. It complicates the future of Amazon and Walmart’s Flipkart in India, the largest open market globally by users, where e-commerce still accounts for just 3% of all retail sales. The merger also means increased competition to existing brick and mortar companies like D-Mart and Aditya Birla Fashion.
“With this transaction, we are pleased to provide a home to the renowned formats and brands of Future Group as well as preserve its business ecosystem, which have played an important role in the evolution of modern retail in India. We hope to continue 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. We are committed to continue providing value to our consumers across the country,” said Isha Ambani, Director at Reliance Retail, in a statement.
RRFLL has also proposed to invest Rs 1,200 crore in the preferential issue of equity shares of FEL to acquire 6.09 % of post-merger equity holding; and Rs 400 crore in a preferential issue of equity warrants which, upon conversion and payment of balance 75% of the issue price, will result in RRFLL acquiring further 7.05% of FEL.
Future Group, which kickstarted its journey as a stonewashed-fabric seller in the 1980s, serves millions of customers through more than 1,500 stores in more than 400 cities. The recent deal will help Biyani to get rid of debt – both at the promoter level and in the listed entities level which were hit hard by the COVID-19 pandemic – resulting in the closure of several stores since March.
The deal may however risk Future’s tie-up with the US online shopping giant Amazon. In August last year, Seattle-based Amazon took an indirect stake of 1.3 per cent in Future Retail as a result of purchasing 49 per cent of Future Coupons Ltd. This investment allows it to buy into Future Retail after a period of between 3 and 10 years.
That partnership was deepened in January when Amazon became the authorised online sales channel for Future Retail’s stores that sell everything from groceries to cosmetics and apparel.
“As a result of this reorganisation and transaction, the Future Group will achieve a holistic solution tothe challenges that have been caused by COVID-19 pandemic and the macro-economic environment,” said Kishore Biyani, Group CEO, Future Group. “This transaction takes intoaccount the interest of all the stakeholders including lenders, shareholders, creditors, suppliers and employee giving continuity to all its businesses.”
After this transaction, FEL will retain the manufacturing and distribution of FMCG goods and integrated fashion sourcing and manufacturing business and its insurance JVs with Generali and JVs with NTC Mills.