Ambani steals a march on Bezos for retail in India
Add Amazon to the list of companies that have been outmanoeuvred by Mukesh Ambani’s juggernaut. Not only has he jolted the US giant in the fight to dominate India’s retail sector, he now holds all the cards in a $3.4bn dogfight to buy a local cash-strapped retailer.
Ambani’s Reliance Industries in late-February quietly began poaching employees and taking over rental leases of hundreds of stores once run by Future Retail and Future Lifestyle Fashions, even as Amazon furiously tried to block formal acquisitions through lawsuits and arbitration across India and Singapore. Ambani’s bloodless coup forced Amazon to seek settlement on the bitter dispute and alarmed Future’s investors and lenders wary of asset-stripping.
“We did not expect Reliance Group to take such drastic actions, without even discussing the matter with us,” Future Retail CFO Chandra Prakash Toshniwal wrote in a March 2 letter to Reliance’s retail units. “Please confirm that there will not be any reduction in consideration payable.”
Another letter, dated March 5 — Bloomberg has copies of both the letters — sent by Future Lifestyle expressed “concerns and shock” and requested Reliance not to undertake such actions that “may be viewed seriously by the lenders, who have charge on all current and fixed assets” of the company. Banks may cut off Future’s credit lines, crippling what is left of an already cash-starved retailer, the letter said.
The Kishore Biyani-led Future Group got caught in the tussle between two large corporations after Amazon objected to Reliance’s August 2020 offer to buy Future Retail’s stores and warehouses for 247.1 billion rupees ($3.4bn). The American e-commerce giant said the deal violated its 2019 agreement with another Future Group firm as it bled out Future Retail, which has missed debt obligations and faces bankruptcy risk.
Future Retail said in an exchange filing late on Wednesday it has received termination notices on subleases for 342 large and 493 small stores from the Reliance group. These stores contributed as much as 65% of revenues but are now not operational for stock and inventory reconciliation. Separately, Future Lifestyle said it has received termination notices for 112 subleased properties from Reliance entities that were bringing in a similar proportion of revenues.
Shares of Future Retail slipped 0.3% on Thursday in Mumbai, while Future Lifestyle fell 1.8% on a day when the benchmark S&P BSE Sensex rose 1.5%.
Future Group ran India’s biggest retail grocery chain before the pandemic struck, making it a juicy target for two of the world’s richest men — Ambani and Amazon’s Jeff Bezos — as they jostle for control of the only billion-plus consumer market where foreign firms can compete.
Representatives for Reliance, Amazon and the Future Group did not immediately respond to emailed queries seeking comments on the letters.
The fate of Future Group investors, including Blackstone and L Catterton, and lenders now hang in balance as Reliance, Future and Amazon hammer out an out-of-court settlement by March 15, when they need to report progress to India’s Supreme Court.
Reliance’s tactical win offers it the “master key”, giving it the strongest position at the negotiation table, according to Nirmal Gangwal, Mumbai-based founder of financial advisory firm Brescon & Allied Partners.
Amazon is the latest player to witness how the Reliance conglomerate muscles in and eventually dominates nearly every sector it gets into — petrochemicals, crude oil refining, consumer retail, telecom, digital services and, more recently, green energy.
Last week, Amazon sought to bury a nearly two-year-old legal spat, five days after local media reported Reliance’s tacit takeover of stores by signing new lease agreements with landlords owning Future’s stores and sending job offers to 30,000 workers from the Future Group.
Amazon’s disbelief at the turn of events came through during court hearings last week. The American e-tailer’s lawyer Gopal Subramanium said Future Group told them the deal with Reliance will take six months or more to close. “It has hardly been 48 hours and people are taking over shops,” he said.
But the drawn-out litigation hurt Future Group the most. The two Future firms owe 300 billion rupees in total debt, on the back of dwindling cash flows and operations.
Reliance will honour the definitive agreement they signed in the past, a person close to the development said, who did not want to be identified as the matter is private. It has also extended the period for closing the transaction by six months to September 30.
Another person familiar with the developments said Future Group was treading carefully as it does not want to unsettle Reliance right now.
That tone of measured caution, bordering on desperation, comes through in the letters sent by Future firms.
“We have always acted with full transparency and have considered Reliance Group as a partner,” Future Retail said in the letter, adding that it was hopeful of closing the transaction soon. “We would, therefore, request that you do not take any actions against us.”
Bloomberg News. For more articles like this please visit Bloomberg.com.
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