Future – Amazon – Reliance – Three is a crowd

Future – Amazon – Reliance – Three is a crowd

 

Reliance is saying it has called off the Future Retail deal, but this statement is just like your ex claiming that they broke up with you when you broke up with them.

One of the world’s most entertaining battles has been raging in India for the past two years. The fight between two of the world’s richest people: Jeff Bezos and Mukesh Ambani.

While Bezos had the world’s second-biggest fortune, Ambani had the home ground advantage. What they didn’t have (and wanted badly) was control over the Future Group.

Sadly, this interesting battle has kind of had an anti-climactic ending now.

Allow me to take you through this hard fought, full of bounce & turn cricket test match….

First Innings

The story begins in 2019.

The Competition Commission of India had just given Amazon permission to buy a 49% stake in Future Coupons for Rs 1500 crores. For Amazon, the deal was just a way to get to Future Retail.

You see, Future Coupons is a promoter of Future Retail (part of the Future Group), and so by buying a 49% stake in Future Coupons, Amazon automatically (and indirectly) got a 3.58% stake in Future Retail.

Additionally, the deal gave Amazon the right to buy all of the Future Coupon’s stake (7.3%) in Future Retail three years after the deal.

Everybody was happy with the deal. Especially Future Retail, because it had massive loans worth around Rs 3500 Cr. The deal would not only give it cash to pay off some of these debts but also an opportunity wherein Amazon would list Future Retail products on its marketplace.

Come 2020, with a plot-twist: the pandemic.

Future’s loans increased (amounting to almost Rs 11250 Cr) and Amazon didn’t provide any help.

Enter: Mukesh Ambani

Ambani saw this as a great opportunity to expand Reliance’s retail business. Instead of building its own stores and warehouses, he thought it was much easier to just buy those from Future Retail. And the company agreed, it was desperate to pay off its debts.

But this made Bezos angry.

You see, his game plan was to acquire Future’s stores so Amazon could have an offline presence in India.

Okay, but why not just create its own stores like the Amazon Go stores in the US?

First, that would take a lot of money, time and effort. Precisely why Ambani also wants to acquire Future’s stores and not create his own.

Second, according to Indian rules, foreign e-commerce giants like Amazon and Walmart cannot open physical stores in India.

So, Bezos decided to fight tooth and nail to stop Reliance’s deal.

The two companies went to several courts until finally, the Competition Commission claimed Amazon made the deal with Future Coupons under false pretenses. It said that Amazon had not disclosed its real purpose when striking the deal: its interest in Future Retail.

When Amazon had proposed the deal, it had only said that it was interested in bridging the gaps in India’s payment structure through Future Coupons. There was “a deliberate design on the part of Amazon to suppress the actual scope and purpose of the” deal.

So CCI does not approve the deal anymore and will review it again. And to rub spice into the wound, it also fined Amazon Rs 200 Cr for misleading.

So, is the match over? No, it has just begun.

Second Innings

Jeff Bezos did not become the world’s second-richest person by giving up. He further escalated the issue, contesting the CCI’s decision, and taking it to the National Companies Law Tribunal.

His argument: the scope of the deal was specified and the CCI could not just change its decision after two years. And that’s not all. Amazon went completely on the offensive, taking Future and Reliance to even more courts, even the Supreme Court.

If Bezos couldn’t have Future, he wouldn’t let Ambani get it so easily.

It began a hostile takeover of Future.

You see, waiting around for the deal to happen seemed like a major hassle. So, Ambani decided to just start taking over Future’s stores.

But how can he do so?

Well, you see, as Future didn’t have the money to pay off landlords of several stores, Reliance had stepped in and taken store leases on its name. It then sublet the stores back to Future. But technically, these stores were Reliance’s.

Plus, a lot of inventory for these stores had also come from Reliance JioMart. And Future had not paid for this inventory.

So, as a way to reclaim some of the money it had put into Future, Reliance laid claim to over 900 of Future’s 1500 stores even without a deal.

Problem solved?

No, this one wrong move that Reliance took to win the battle ended up costing it the war. Both Future and Amazon created major noise about this hostile takeover. Amazon took out front page ads calling out Reliance’s “fraud”.

All of this noise did not impact Reliance. But it impacted Future Retail’s secured creditors.

Who are secured creditors? They are financial institutions like banks which can reclaim Future’s assets in case of loan default.

Because these banks’ money is at stake, they get to call the shots about a potential deal or acquisition.

And they have rejected Reliance’s deal.

So, Reliance can now no longer acquire Future Group. Or as it is saying, it is not going forward with the Future deal.

But why did the creditors reject such a great deal?

Because Reliance’s hostile takeover move made them doubtful about whether such a deal was a good idea.

Plus, Reliance had earlier claimed that it would give priority to those holding the company’s bonds and pay off their debt first. This didn’t sit well with the secured creditors as they should be the ones getting this priority.

That’s why 69.29% of secured creditors rejected the move.

So, what now? Will Amazon swoop in to save Future?

Well, it could, but banks are considering going the insolvency court route.

So, ultimately, it looks like the battle has ended in a draw.

But both Bezos & Ambani are tough competitors and to both of them Future Group is of immense strategic value. I think they would want the dust to settle down first, before making their next move..

Picture abhi baaki hai mere dost……