Amazon vs Reliance: Future of retail supremacy in India hangs in the balance
Amazon and the Future Group have been embroiled in a complex legal battle for more than a year. Future’s Rs 24,500 crore asset sale to rival Reliance Industries has been put on hold due to this.
Despite agreeing to out-of-court settlement talks earlier this month, Amazon and Future informed the Supreme Court on March 15 that they had been unable to reach an agreement.
AMAZON TO SUPREME COURT
Amazon has noticed the “disappearance” of assets and has asked the Supreme Court for an interim order to ensure the preservation of Future Retail Ltd’s assets and the resumption of arbitration over FRL’s merger arrangement with Reliance Retail.
The bench, which included Chief Justice N V Ramana, Justices A S Bopanna and Hima Kohli, took note of Amazon’s claims that its “applecart” was being upset by competitors and asked the Future group firms, FRL and Future Coupons Ltd (FCPL), responding to Amazon’s interim plea for resumption of arbitration and asset preservation, and set the hearing for March 23.
FUTURE RETAIL COUNTER
Future Retail, an Indian retailer, said on Wednesday that it was committed to reclaiming its locations taken by rival Reliance, saying it was astonished by the move.
On February 25, Reliance, India’s largest retailer, startled Future by sending personnel to many of the company’s largest locations to take over in what was viewed as a de facto takeover.
Future said in a statement to Indian stock exchanges on Wednesday that it was dedicated to doing everything it could to prevent Reliance from “reversing the ownership of the outlets.”
Future did not specify how it will do so, but it did express surprise at Reliance’s “dramatic and unilateral decision.”
ARGUMENT
After the US e-commerce giant moved the latter to arbitration at the Singapore International Arbitration Centre (SIAC) in October 2020, Amazon and Future Group are embroiled in multi-forum litigation over FRL’s Rs 24,500 crore merger transaction with Reliance Retail Ltd.
Amazon claimed that FRL breached their contract when it agreed to sell its assets for Rs 24,500 crore to Mukesh Ambani’s Reliance Retail on a slump sale basis.
The Competition Commission of India stopped its over-two-year-old authorisation of Amazon’s proposal to purchase a 49 per cent stake in FCPL and FRL promoter in December last year and impose a Rs 202 crore penalty on the e-commerce giant.
Amazon has objected to the sale plans, claiming that the Future Group has broken its 2019 investment agreement.
Future Coupons was created in 2008 and specialises in the marketing and distributing corporate gift cards, loyalty cards, and other reward programmes.
About Amazon
Amazon.com, Inc. is e-commerce, cloud computing, digital streaming, and artificial intelligence-focused American multinational technology firm. It has been called “one of the world’s most important economic and cultural forces” and is one of the most valuable brands in the world. Along with Alphabet, Apple, Meta, and Microsoft, it is one of the Big Five American information technology corporations.
On July 5, 1994, Jeff Bezos launched Amazon from his garage in Bellevue, Washington. Originally a book-selling website, it has expanded into a wide range of other categories, earning it the moniker “The Everything Store.” Amazon Web Services, Zoox, Kuiper Systems, and Amazon Lab126 are among its subsidiaries. Ring, Twitch, IMDb, and Whole Foods Market are among the company’s other subsidiaries. Its acquisition of Whole Foods in August 2017 for $13.4 billion considerably expanded its physical retail network.
Because of its technological innovation and vast size, Amazon has developed a reputation as a disruptor of well-established sectors. In terms of revenue, it is the world’s largest Internet firm, online marketplace, AI assistant provider, cloud computing platform, and live-streaming service as of 2021. Outside of China, Amazon Prime, a monthly membership service with over 200 million customers worldwide, will overtake Walmart as the world’s largest retailer in 2021. It is the second-largest private employer in the United States.
Through its Amazon Prime Video, Amazon Music, Twitch, and Audible subsidiaries, Amazon also distributes various downloadable and streaming materials. Amazon Publishing distributes books, Amazon Studios produces film and television programming, and since 2022, it has owned the film and television studio Metro-Goldwyn-Mayer. It also makes consumer products, including Kindle e-readers, Echo devices, Fire tablets, and Fire TV.
Amazon has been chastised for methods such as excessive technological surveillance, a hyper-competitive and demanding work environment, tax evasion, and anti-competitive behaviour.
About Reliance
Reliance Industries Limited is an Indian multinational conglomerate business headquartered in Mumbai, India. Energy, petrochemicals, natural gas, retail, telecommunications, mass media, and textiles are among its numerous activities.
Reliance Industries is one of India’s most lucrative enterprises and the country’s largest publicly traded company by market capitalisation and sales. With nearly 236,000 people, it is India’s tenth largest employer. As of October 2021, RIL had a market capitalisation of US$243 billion.
The company is now ranked 155th on Fortune’s Global 500 list of the world’s largest corporations in 2021. With access to over 100 countries’ markets, RIL continues to be India’s leading exporter, accounting for 8% of the country’s entire product exports. Reliance is responsible for about 5% of the total revenue collected by the Indian government in customs and excise duties. It is also the highest income tax payer in India’s private sector. The corporation has a negative free cash flow.
Shareholding
RIL has around 644.51 crore shares (6.44 billion) market capitalisation. The promoter family, the Ambani family, holds roughly 49.38 per cent of the total shares, with the remaining 50.62 per cent held by public shareholders, including FIIs and corporate organisations. Life Insurance Corporation of India (LIC) is the largest non-promoter stakeholder, owning 7.98% of the company’s shares.
In January 2012, the company launched a share repurchase programme in which it will buy up to 12 crore (120 million) shares for Rs. 10,400 crore (US$1.5 billion).
Listing
The company’s equity shares are listed on the National Stock Exchange of India and the Bombay Stock Exchange Limited (BSE). The Luxembourg Stock Exchange trades the company’s Global Depository Receipts (GDRs). It has issued 5.6 crore (56 million) GDRs, each of which is worth two firm equity shares. Approximately 3.46 per cent of the company’s total shares are listed on the Luxembourg Stock Exchange. The National Stock Exchange of India Limited’s Wholesale Debt Market (WDM) division trades its debt products (NSE).
It has AAA domestic credit ratings from CRISIL (a division of S&P) and Fitch. The company’s foreign debt has received Baa2 positive outlook (local currency issuer rating) and BBB+ outlook investment-grade ratings from Moody’s and S&P. RIL announced on December 28, 2017, to buy Anil Ambani’s Reliance Communications’ wireless assets for around 23,000 crores.
‘Shops gone,’ says RIL in the struggle for Future Retail
Last Monday, staff at a massive Future Retail supermarket in Mumbai were unloading hundreds of brilliant blue grocery crates belonging to Reliance, the country’s largest retailer.
Potential customers were turned away by security because of the store’s closed state, which still displays the signage of Future’s main brand, Big Bazaar, but will most likely reopen as a Reliance branch soon.
Similar situations are being played out across India as Reliance Industries pushes forward with a surprise de facto takeover of valued retail real estate that Amazon.com Inc had expressed interest in.
Reliance’s takeover began quietly on February 25, when its employees arrived at Future outlets. Many in Future’s management were uninformed of the intentions when store employees from around the country began phoning worried, according to those with direct knowledge of the incident.
“It was tense, and everyone was nervous.” We had no idea who they were. “They demanded entry, and the seniors were unaware,” a New Delhi Big Bazaar store staffer explained about 8 p.m. that day.
According to one source, as Reliance grabbed control, announcements were made telling people to leave a Future shop in Sonipat. According to another source, Future employees arriving for work the following day in Vadodara were told to return home without explanation.
Due to delayed payments, Reliance has taken control of roughly 200 Big Bazaar stores and plans to seize another 250 of Future’s retail outlets. They account for about one-third of Future’s retail sites, making them the crown jewels of the company’s retail network.
Insiders said Reliance had taken over several leases owned by cash-strapped Future, India’s No. 2 retailer and Amazon’s estranged business partner, for several months, while not playing a big role in the legal dispute.
Reliance’s quick acquisition of the stores appears to have delivered a coup de grace, damaging Amazon’s capacity to unravel the transfer of Future’s assets to Reliance, according to multiple experts. Although the US e-commerce behemoth has won a series of court challenges, the two Indian companies have announced a 2020 partnership.
“What will Amazon fight for now?” said a source familiar with the legal tussle close to the US giant. “The stores have vanished.”
Reliance Industries, Amazon, and Future Industries did not respond to Reuters’ requests for comment for this storey. On February 26, Future Retail declared that it was “scaling down its operations” to cut losses, although it did not mention Reliance. Future Group owes around $4 billion in debt.
Reliance plans to keep Future’s employees at the locations it buys, according to insiders.
The supermarkets and other businesses have been referred to as an “irreplaceable” network in a $900 billion-a-year industry by Amazon, which owns a stake in a separate Future Group unit that it argues precludes Future from selling retail assets without its agreement.
Amazon surprisingly called for friendly talks to end the case at a Supreme Court hearing last Thursday, six days after Reliance’s action – a request Future agreed to.
Amazon’s lawyer Gopal Subramanium remarked, “People have taken over shops… lets at least have a conversation.”
Why Amazon and Reliance are clashing in India over a cash-strapped retail chain?
Two of the world’s wealthiest men are battling for a failing brick-and-mortar retailer. But in the war for India’s burgeoning e-commerce market.
Amazon (AMZN), Jeff Bezos’ Seattle-based e-commerce company, sues Mukesh Ambani’s Reliance Industries and the Indian retail behemoth Future Group over a $3.3 billion agreement.
At risk is strategic access to a network of popular Indian grocery stores and retail outlets, which both Amazon and Reliance want for themselves or to prevent the other from getting.
“If someone backs down, it would appear that one has lost and the other has triumphed when the struggle has just begun,” said Tarun Pathak of Counterpoint Research.
According to a recent estimate from market research firm Forrester, Amazon has a 31.2 per cent market share in India’s e-commerce industry, slightly behind Walmart-owned Flipkart’s 31.9 per cent. However, with JioMart, part of Ambani’s huge conglomerate, he has made no secret of his desire to upend the market.
Future Retail, Future Group’s cash cow, is at the centre of the present conflict. Big Bazaar, a well-known and famous hypermarket chain in India, is part of the retail entity. According to stock exchange documents, Amazon invested in a Future Group business in August 2019, giving it a roughly 4.8 per cent holding in Future Retail as of September 30 this year. According to one of the documents, the deal provided Amazon with the right of first refusal to buy more Future Retail shares.
Then came Covid-19. India imposed one of the most stringent statewide curfews in history, ordering businesses to close and millions of people to remain indoors for months.
According to Future Retail’s most recent financial report, the pandemic has had a “substantial unfavourable impact” on its business operations. Future Retail’s credit rating was lowered in July after the company failed to make a bond payment. Future Retail’s credit rating was reduced two notches to C by Fitch Ratings, indicating that the company was “on the verge of default.”
The following month, Reliance and Future Group announced that Reliance would purchase Future Retail and many other properties from Future Group. Future Group was able to “deliver a holistic solution to the issues that have been posed by Covid and the macroeconomic environment” as a result of the purchase, according to Kishore Biyani, CEO of Future Group at the time.
A legal dispute
The news caught industry observers off guard.
“Everyone knew Amazon had a stake in Future Retail, and the deal didn’t say what would happen to Amazon’s stake,” said Satish Meena, a Forrester analyst.
Amazon retaliated by filing a complaint with the Singapore International Arbitration Centre (Singapore International Arbitration Centre) (SIAC).
According to Ashish Kabra, a lawyer who heads the International Dispute Resolution & Investigations Practice for Nishith Desai Associates in Singapore, Indian and foreign companies operating in India frequently agree to settle disputes in Singapore because “it’s a neutral jurisdiction with high integrity and international standards.”
The arbitration process is private, and no submissions are made public.
According to a person familiar with Amazon’s position, the 2019 arrangement inked between the company and the Future Group subsidiary included a non-compete clause. According to the individual, the condition named 30 restricted parties with which Future Retail and Future Group could not do business, and Reliance was included on that list.
“The key point is the legitimacy of contracts if you just ignore them,” said a source acquainted with Amazon’s side of the storey.
“Are businesses simply ignoring contracts and doing whatever they want?”
According to the legal ruling reviewed by Reuters and not made public, a SIAC emergency arbitrator gave Amazon a modest success this week when it imposed a temporary halt to Future Group’s agreement with Reliance.
According to Reuters, which quoted the Singapore decision, Future Group contended that if the agreement with Reliance falls through, its retail unit will be pushed into bankruptcy, resulting in the loss of 29,000 employment. Although the order isn’t public, a source familiar with Amazon’s position confirmed that Future made this case.
According to the judgement, the arbitrator decided that “economic hardship alone is not a legal justification for neglecting legal responsibilities.”
“We applaud the Emergency Arbitrator’s decision. We are grateful for the order, which provides all of the requested reliefs “In a statement, an Amazon spokeswoman said.
CNN Business contacted Future Group for comment, and Future Retail responded with a statement.
SIAC’s communication and order are being investigated by Future Retail.
In a statement, Reliance (RRVL) stated that their agreement with Future Retail is “completely enforceable” under Indian law.
The statement stated, “RRVL aims to assert its rights and complete the transaction by the scheme and agreement with Future group without delay.”
According to Kabra, the lawyer, in the past, Indian courts have largely followed the lead of orders issued by emergency arbitrators outside of India.
“Parties had already approached Indian courts and requested similar reliefs in India, depending on the Emergency Arbitrator’s decision. Indian courts award the same comfort in most cases, “Kabra remarked.
A ‘clash of the titans’
According to one analyst, Future Retail’s 1,500 outlets are not a must-have for Reliance, 11,000 stores across India, and Amazon, India’s No. 2 e-commerce company.
“It’s not like you can’t have your ambitions if you don’t have Future [Retail],” Counterpoint Research’s Pathak said.
He went on to say that this is “less about Future and more about the clash of titans,” as well as “defend your land.”
Ambani’s JioMart has expanded its presence in India to compete with Amazon and Flipkart. It recently extended to hundreds of cities across India, with intentions to grow into electronics, fashion, pharmaceuticals, and healthcare shortly. According to analysts, the company would likely use Reliance Retail’s nationwide network of physical stores to fulfil online orders.
According to Meena of Forrester, the industry had expected Amazon and Reliance to strike a partnership in the future because they need one other’s skills. To expand inventory and leverage retail facilities as storage and delivery centres, Amazon requires more stores. According to Meena, Reliance does not have much e-commerce experience.
However, any future relationship between Amazon and Reliance “depends on how much bad blood there is between them today,” according to Meena.
“It might turn into an ego struggle between the CEOs of both firms,” he predicted.
Mukesh Ambani vs Amazon: How Reliance is winning a game of thrones in Future retail dispute
Reliance Industries, owned by Mukesh Ambani, and Amazon, based in the United States, have been battling dominance in India, one of the world’s fastest-growing retail marketplaces. This is why Amazon.com Inc and Future Group have been involved in a convoluted legal battle for over a year, delaying Future’s $3.4 billion asset sale to rival Reliance Industries.
After months of sabre-rattling in courtrooms, Amazon and Future surprisingly decided on March 3 to hold talks to settle their dispute. The big question is what caused the abrupt shift in tone.
AMAZON-FUTURE DISPUTE AND RELIANCE
According to a Reuters storey, Amazon and Future, India’s number two player behind market leader Reliance, became business partners in 2019 when the US company invested $200 million in a unit of the Indian group.
Amazon claims that the acquisition included non-compete terms that prevented Future from transferring retail assets to specific competitors, including Reliance. The agreement also includes requirements requiring any disputes to be addressed, according to the Singapore International Arbitration Centre’s criteria.
Future, on the other hand, was obliged to sell assets to Reliance in 2020 as a result of the Covid-19 pandemic.
Amazon then went to Singapore arbitrators, who were able to put a halt to the sale. Both parties have also filed litigation against each other in Indian courts, including the Supreme Court.
RELIANCE’S SUDDEN MOVE
According to the Reuters article, Reliance began a de facto takeover of some 500 Future outlets, representing the crown jewels of its retail network, on February 25, despite having played no public role in the dispute.
Reliance had absorbed many of Future’s leases and has now moved to take control, citing delayed rental payments.
This alarmed Amazon. During a Supreme Court hearing on March 3, Amazon referenced store takeovers and extended an olive branch, saying the “whirlpool” of litigation must come to a halt. According to Reuters, Future agreed to the talks, which are still ongoing.
DID AMAZON UNDERESTIMATE RELIANCE?
Amazon suddenly called for friendly talks to end the case before a Supreme Court hearing, which Future agreed to. Amazon’s lawyer Gopal Subramanium remarked, “People have taken over shops… lets at least have a conversation.”
“What is it that Amazon will fight for now? The stores are no longer open. “According to Reuters, a source close to Amazon with knowledge of the legal battle was quoted.
Whatever the outcome of the talks, many believe Amazon misjudged Reliance. “If anyone should have seen this coming, it should have been Amazon, and they should have prepared,” retail consultant Third Eyesight’s Devangshu Dutta told Reuters.
BIGGER PICTURE
Whether Amazon can outperform Reliance in a $900 billion retail market with 1.3 billion customers.
Future owns roughly 1,500 supermarkets, whereas Reliance has about 1,100. Both companies are rapidly expanding into e-commerce, but the Future merger will immediately increase Reliance’s retail base, which has attracted major international investors.
Amazon, for one, has put $6.5 billion into India, which it sees as a critical growth region and a major e-commerce player. By integrating the Indian company’s outlets on Amazon’s website, the Future collaboration has already helped Amazon expand its online grocery delivery portfolio.
