The dispute between Reliance Industries, Amazon, and Future Retail is going on for more than 2 years but currently, it is solved. In this article, we will be discussing the deal between Amazon, Future Retail, and Reliance Industries in detail, and will know the latest updates regarding this deal. So, let’s get started.
Amazon and Future Retail deal
- Future retail was making a huge number of losses in 2019 then Amazon make an offer to Future Retail stating that Amazon will acquire the Future Coupon for Rs. 1500-2000 crores.
- Future Coupon is a promoter company in Future Retail and Future Coupon holds a 7% stake in Future Retail. When amazon takes the 49% stake in Future Coupon then indirectly amazon receives a 3.5% stake in future retail.
- Amazon has also signed the two extra provisions with future groups while taking the stake in the Future Coupon.
- Within 3 to10 years, Amazon will have the option to take a full or partial stake in Future Retail which Future Coupon has.
- Non-Compete Clause- Amazon has given the name of 15-20 companies (Reliance, Walmart, Zomato, Paytm, etc.) to future retail stating that these companies can’t take a stake in Future Retail.
Reliance Industries and Future Retail Deal:
- After the pandemic Covid-19, the losses of the Future Retail have increased to Rs. 7,000 Cr.
- The Future Group needed the money then Reliance makes an offer to acquire the Future Retail, Future Lifestyle, and Future Consumer so that it can strengthen its wholesale logistic business and offer Rs. 24,713 Cr. to acquire, and also said that it will keep the 30,000 employees of the Future Group and Future Retail agreed to it.
Why do Amazon and Reliance want to acquire Future Retail?
Amazon wants to expand in the Indian retail market and if Amazon acquires Future Retail, then its business will increase a lot. Similarly, Reliance wants to expand its retail business and if they acquire Future Retail then it will receive a brand-built company.
Problems between Reliance Future Retail Deal:
- Reliance was acquiring the whole Future Retail, so the Amazon provision pact got canceled and the second important clause of non-compete both got violated by the Reliance Group for which Amazon Group reach the court.
- And Future Retail is stating that Amazon has signed the provision with Future Coupon, not with Future Retail. Under the Foreign Direct Investment Policy, it is said that if any company is investing up to 51% then they have to take the permission of the government. Amazon was asked if they had followed this provision or not.
- Amazon is a US-based company whereas Reliance and Future Retail is an Indian based company, to solve this dispute unbiasedly Amazon further reached an international arbitration center that is Singapore International Arbitration Centre and it gives a judgment in the favor of Amazon but issued an interim order to Reliance and Future Retail to hold their deal.
- Amazon has sent a letter stating the order of Singapore international arbitration to CCI (Competition Commission of India) and SEBI (Securities Exchange of India) as Reliance has to take permission from both for acquiring Future Retail.
- Amazon also files a case in a local court to enforce the interim order of international arbitration and Reliance states that it is an interim order, not a final order, and the battle continues for 2 years.
- Ultimately one-day Future Retail organizes its shareholder’s meeting along with secured and unsecured creditors all were invited and 85.94% of shareholders states that they don’t have any problem with Reliance and Future deals, 78.22% of unsecured creditors also give their approval but 62.29% of the creditor not approved the deals as they have proper right on the assets of the company so if company takeover another company what they will receive it’s a big question and after this meetings outcome Reliance backouts but the cases were already going on in the court.
Pros/Cons of this deal to Amazon, Reliance Industries, and Future Retail:
- Amazon got success in their non-compete clause, in which they wanted Reliance industries not to acquire Future Retail.
- Amazon has its 3 to 10 years provision available with them, but the value of the Future Retail has come down due to this dispute and the benefit amazon was about to receive earlier from this deal will not be the same now, Amazon will not get a first-mover advantage.
ii) Reliance Industries:
- During the dispute, Reliance Industries try to play smart and purchased the lease of 900 Big-Bazaar stores, and now Future Retail owns the Rs. 3000 Cr. rent to the Reliance Industries but Future Retail doesn’t have money to pay.
- Reliance Industries also have to pay the salary to the employee of Future Retail, If Reliance Industries set up their store at that place it will involve a huge cost.
iii) Future Retail
- Amazon will acquire the Future Retail or not, we will get to know this in the future but the deal between Reliance on industries and Future Retail is closed.
- Lender of Future Retail is facing problems because if some company acquires Future Retail, then they might get benefited but if Future Retail has signed the clause of non-compete then all those retail players who can be major acquirers are not there. And even if some will acquire then they have to sell the Future Retail at a very discounted price.
- Lenders have another option of liquidating the assets of the Future Retail as after liquidating the lender will be the first person to receive the payment but delay in the process will reduce the value of the assets.
- Shareholders will not get benefits anywhere but when Reliance industries announce that they will acquire the Future Retail the stock price of the Future Retail was trading around Rs. 100 and currently it is trading for Rs. 11, there is no buyer for Future Retail stocks.
What should an Investors do?
Future Retail has not to get benefited from any side but if they had kept their deal only with Amazon, then there was a possibility that they might get benefited. Investors who have invested in Future Retail during the Reliance-Future deal are now stuck and have no options but to sell in the loss. Hence, one should always do a deep analysis before buying any stock, try to avoid penny stocks, and should avoid news-based investing.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF