The Financial Literacy Cell
Alexa or ‘ALEXA’nder?
A tussle for the Indian Retail Industry
It was in August 2020 that Mukesh Ambani led Reliance group came up with their decision to acquire all retail assets of Kishore Biyani’s Future group. The $3.6 billion (Rs.25000 crore) deal was aimed at a consolidation of five of Future group’s retail and wholesale subsidiaries namely Future Enterprises, Future Consumer Ltd. Future Lifestyle Fashions Ltd., Future Retail Ltd., Future Market Networks Ltd., Future Supply Chain Solutions Ltd. and Futurebazaar India Ltd. into a single entity i.e., FEL (Future enterprises ltd.) and the transfer of the assets to Reliance Retail and Fashion Lifestyle Limited.
This deal came as an opportunity to Reliance to expand their retail business in India and also an obligation to pay off all the liabilities of FEL. Once, known to be the King of retail in India, Kishore Biyani led Future group had been hard hit by the pandemic, which resulted in lower footfall in its retail stores, combined with weakening of logistic and supply chains which further worsened the situation for Future group. The deal was termed crucial for all the stakeholders of Future group which is not in a position to pay off its liabilities or even to stock up their retail stores like Big Bazaar and Easyday. But this was not the primary reason for the failure of FRL. They were Biyani’s aggressive short term financing strategies to overcome the 2008 recession and his urge to diversify and expand Future Group’s business that dug a hole in the group’s portfolio.
On Oct. 8, 2020, Amazon came into the picture by sending a legal notice to Future group and approached SIAC (Singapore International Arbitration Centre) seeking a halt on the deal and accusing Future group of breaching a non-compete contract with respect to this deal citing its Dec. 2019 deal with Future group, in which it had acquired 49% stake in Future coupons pvt. Ltd., a subsidiary of Future group which has a 7% stake in Future group ltd. This gave Amazon an indirect 3.48% stake in Future group. The Amazon-Future deal gave Amazon a call option to acquire the promotor shareholding within 3 to 10 years of the deal. The deal also contained a clause that restricted Future group from selling any of its stake in its retail business without Amazon’s permission and certainly not to a specified list of Amazon’s rivals which consists of RIL as one of them. SIAC was appointed as an arbitrator in case of any dispute. SIAC’s verdict came in Amazon’s favour which directed a halt on the Future-RIL deal.
Nonetheless, the deal was given a green flag by Competition Commission of India (CCI) on Nov. 20, 2020. Future group then approached Delhi high court seeking a restraint order to bar Amazon from approaching statutory authorities to look into the matter. A single judge bench of the Delhi high court held that SIAC’s award was valid under law in India and allowed Amazon to approach the Statutory Authorities. Amazon then wrote to SEBI seeking a halt on the deal on basis of SIAC’s award. But on 20th Jan. 2021, SEBI too green-flagged the Future-RIL deal. Amazon reapproached the Delhi High court seeking an order to restrain Future group from transferring any asset to RIL and demanding a civil detention of Kishore Biyani and other promoters along with the seizure of their assets. On Feb. 2, 2021, a single judge bench comprising of Justice J.R. Midha ordered all the parties to maintain a status-quo on the situation till further orders and demanded a status report to be filed within 10 days.
Future group, on the following day challenged the court’s order arguing that the court didn’t have powers to reverse the verdict already given by the single judge bench on Dec. 22. Future group also pleaded that if its deal with RIL is obstructed, it would lead to dire consequences for its shareholders, creditors and employees as it may have to file for bankruptcy and that Amazon was only concerned with restricting RIL to acquire its assets and had no real interest in the welfare of the company. Amazon replied that they had been constantly committed to help FRL and didn’t want the company to go down. On Feb. 8, 2021, citing that Amazon had no right to seek a status-quo order if they were not interested in the deal, the Delhi High court stayed the Feb 2 order.
There have been numerous rounds of arguments in the court. According to Future Group, Amazon’s call option would be valid only from the fourth year of the one-year-old deal and that the legal notice came as a surprise to them as they had asked Amazon before entering into the deal with RIL. Also, getting no response from Amazon, they had no option other than approaching some other player in order to safeguard the interests of the company and its stakeholders. Amazon, on the other hand have argued that it had the first right of refusal with respect to the RIL deal which they were not allowed to avail.
In a recent letter written by Biyani to his employees, he stated that “Amazon's relentless attack is on Future Retail, the Board of Directors, lenders, promoters, and is unsparing of even on my father, uncle and children. The stated and evident policy of vexatious litigation and harassment makes one wonder about the similarity in ruthless ambition to scorch the earth akin to the Greek Alexander - after all, they are inspired to name their product as Alexa. History tells us that Alexander conquered large parts of the world but failed in India.”
The present scenario, however, leaves FRL at the mercy of JioMart for supply of around half of its grocery merchandise needs as an extended credit period deal. Kishore Biyani and FRCL were also barred by SEBI on Feb. 3rd from accessing capital markets for 1 year for alleged involvement in insider trading in 2017. After the stay on status-quo order, all eyes are on the next step which Amazon takes. It's certain that Amazon would not easily let go the golden opportunity to become a leader in the Indian retail market. Future's future is now dependent on the success of the RIL deal. If the deal fails, FRL may have to file for bankruptcy which would result in a job loss for around 25000 employees around the country. The battle over the control of $1 trillion Indian retail market has left Future group Sandwiched. Whether the deal succeeds or not is a matter of time. For now, it’s Bezos vs. Ambani and King Biyani’s Future group is at stake.
By Ikshit Ahuja