Amazon and Future Retail lock horns again; with the latter accusing Amazon of behaving like East India Company

Amazon, Reliance Retail Ventures, and Future Retail have been loggerheads with two of the world’s wealthiest names battling it out for supremacy in India’s Retail Market. 

In August 2020, Reliance Retail Ventures, a subsidiary of Reliance Industries Ltd, in an epic deal announced the acquisition of Kishore Biyani’s Future Group for Rs 24,713 crore.

RRVL set to acquire the retail and wholesale business and logistics and warehousing business. 

RRVL will now have access to close to 1,800 stores across Future Group‘s Big Bazaar, FBB, Easysay, Central, Foodhall Formats across over 420 cities in India. 

The above acquisition is part of the scheme in which Future Group is set to merge certain companies carrying on the business as mentioned earlier into Future Enterprises Limited (FEL)

Reliance Retail and Fashion Lifestyle Limited will acquire transfer of the retail and wholesale undertakings of Future Group. 

The deal terms and conditions entailed a merger of five listed units of Future Group ranging from grocery, apparel, supply chain, and the consumer business into Future Enterprises Ltd (FEL) 

After the deal, FEL would emerge stronger with businesses in manufacturing, distribution, FMCG products, and integrated fashion sourcing and merchandising.

Reliance Industries consolidates its position in the Retail Sector.

With the transaction with Kishore Biyani’s Future Group, Reliance strengthened its position further, already the largest retailer by the number of stores in India.

The Retail sector is estimated to be worth $1.3 trillion by 2025 from $700 billion in 2019. 

Mukesh Ambani‘s ambitions now focus on brick – and – mortar retail and e-commerce space. The above deal would enable his conglomerate to transform into a consumer–service giant and help scale down the dependence on revenue from his core business of petrochemicals and oil refining. 

Amazon and Reliance Industries – Future Group dispute

Amazon and Walmart have both invested billions of dollars in a race to capture the world’s largest market in terms of sheer population and the only FDI avenue that is still open to foreign firms. 

Mukesh Ambani’s deal with Future Group proves a dent in the market plans of the two companies. 

• Amazon indirectly bought a 3.6% stake in Future Retail by acquiring a 49% stake in Future Coupons, a promoter entity of Future Retail, with a call option ( August 2019)
• Kishore Biyani, in his communication to Amazon India, stated concerns that the pandemic had caused a significant deterioration in the market capitalization of Future Retail. (March 2020)
• Reliance Industries announced the acquisition of the retail, wholesale, logistics, and warehousing operations of Future Group for Rs 24,723 crore (August 2020)
• A legal notice is sent to Future Group by Amazon citing that Future Group had breached the terms of its contract (October 2020) 
• Amazon gets an interim stay on the deal between Future Group and Reliance by an arbitrator in Singapore. (October 2020)
• Reliance Retail steps in and issues a statement that intends to complete the sale “without any delay” and mentions that the agreement with Future Group is completely enforceable under the Indian Law. (October 2020)
• The Future Group argues that Future Retail was not a party to the agreement between Amazon and Future Coupons and moves to New Delhi High Court to challenge the SIAC order. (October 2020)  

However, both Reliance and Future group said in a press release that they intended to continue with the deal without delay irrespective of Amazon’s injunction from the arbitrator to halt the deal.

Meanwhile, Amazon put forth a separate complaint to India’s markets regulator that the Indian company had misled its shareholders by falsely claiming it was complying with its contractual obligations, hence seeking a suspension of the deals regulatory review. 

In the latest development, on Thursday, Future Retail Ltd, in its argument before the Delhi High Court, submitted that Amazon is misrepresenting its legal rights and cannot be allowed to prohibit its business transaction with Reliance Retail. 

Appearing for FRL, advocate Harish Salve said that the e-commerce giant is behaving like “East India Company” and is trying to destroy competition in the market.

Further, he added – “… Amazon has no investment in FRL. An American company whose pro-rata investment is less than 10% are telling me who I should invest in. Reliance wants to buy, but I have to ask Big Brother sitting in America?”

He also said that Amazon was misleading the world through an agreement that prohibits the company from restructuring, saving jobs, or protecting the creditor’s interest worth Rs 1800crores.

The court will resume its hearing on the matter on 20 November.

Why is Amazon objecting to the deal?

In India, The Retail Industry has emerged as one of the fastest-growing markets. It accounts for over 10% of the country’s GDP and 8% of the country’s employment. 

By 2017, it is expected that the Retail Industry would grow to US$ 1,824 billion. 

India is an important destination for retail and is the world’s fifth-largest market in retail opportunities. India is also expected to become the world’s fastest-growing e-commerce market due to robust investment and an increase in the number of internet users. 

E-commerce is expanding rapidly in the country. Especially now, due to the Covid -19 pandemic, e-commerce has vast growth potential. 

Through the e-commerce channel, the retailers will be able to access more customers in Tier II and Tier III cities and enable the businesses to spend less money on real estate investments. 

The Indian retail trading has received Foreign Direct Investment (FDI) equity inflow totaling US$ 2.12 billion during April 2000–March 2020, according to the Department for Promotion of Industry and Internal Trade (DPIIT).

With the rising need for consumer goods in different sectors, including consumer electronics and home appliances, many companies have invested in the Indian retail space in the past few months.

India’s retail sector attracted US$ 970 million from various private equity funds in 2019.

Walmart Investments Cooperative U.A invested Rs 2.75 billion (US$ 37.68 million) in Wal-Mart India Pvt Ltd. 

It is estimated that the e-commerce retail share could reach 7% of the total retail market by 2020; however, with the uncertainty of normality returning soon, these figures could climb much higher owing to the current scenario.