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Future looking bleak for Amazon as CCI decides fate of buyout

A deal was made with the Reliance group to acquire a stake and a near buyout in the future. Amazon approached Indian-based SE

Read the previous two stories:

  1. Battle of Business Rivalry: Amazon Vs. Reliance
  2. The Legal Battle Continues Over Indian Retail Industry Deal

The Future Group has now successfully begun the sale of its assets to Reliance Group. The Kishore Biyani led Future Group was in talks with Mukesh Ambani led Reliance to purchase its Retail assets. The companies together signed up for several contracts and acquisition sales in the making. The Reliance group had settled on an Rs. 24713 Crore buyout of the Future Group. This buyout was the most critical buyout for the Biyani group due to failure to engage a market during the pandemic. Low purchases and competition took a severe toll on the Future Group’s retail marts. The investment now settles Reliance as the biggest takeover of Indian market history and for monopoly for trade. (1)

While the sale with Reliance took place, the deal with Amazon was still ongoing. Amazon has a 7% stake in the Future Group and a 49% stake in the Future Coupons. The multinational e-commerce organization has settled to buy out the company after three years or within a limit within 3 to 10 years. The sale with Reliance made Amazon furious. Hence, they approached SEBI and the SIAC in Singapore for Arbitration. Amazon has won the interim, and they were on the stay for the deal. Amazon believed that the sale was violating the terms of a legal agreement between the two companies, and the agreement with Reliance would put them as the larges retailer since. (2)

Even though the trade looks suitable for the Future Group, (3) Amazon still wants to hold the sale to Reliance; with the dispute, Amazon is drawing the battle lines with Reliance in the race for India’s estimated $1 trillion retail markets, where online shopping is gaining ground. It needs the Indian partner to strengthen its foothold after becoming the official online sales channel for Future Retail’s stores that sell everything from groceries to cosmetics and apparel. The tussle between Future and Amazon comes when Reliance has been bolstering its position in the country’s retail segment. RRVL has been on a fundraising spree and since September and has raised Rs. 37,710 crore by selling a stake in its retail arm. (4)

RRVL operates India’s largest, fastest-growing, and most profitable retail business spanning supermarkets, consumer electronics chain stores, cash, wholesale trade, fast-fashion outlets, and online grocery store JioMart.

The CCI Influence

The Competition Commission of India on Friday announced that the Reliance-Future group deal is ready to go, and final settlements can be organized for the take over (5). While the tweet has received both praise and Flak at the same time yet, Reliance still wants to make the deal before it all goes topsy-turvy. “Based on the retail assessment framework, the commission’s finding is that the deal does not have an appreciable adverse effect on competition,” said a person aware of the matter. The assessment took two months as the CCI had asked the parties for clarifications during the process, the person said.

The deal requires approvals from CCI, the Securities and Exchange Board of India (Sebi), and the National Company Law Tribunal (NCLT) in addition to no-objection certificates from creditors and minority shareholders. Reliance had sought the CCI’s nod for the deal on September 23. Reliance Retail will now have rights to manage over 1,800 stores across Future Group’s Big Bazaar, FBB, Easyday, Central, Foodhalls, spread in over 500+ cities in India. The acquisition is being made as part of the scheme in which Future Group merges individual companies carrying on the businesses mentioned above into Future Enterprises Limited.

The retail and wholesale undertaking of Future Group will be transferred to Reliance Retail and Fashion Lifestyle Limited (RRFLL), a wholly-owned subsidiary of Reliance Retail Ventures Ltd. The logistics and warehousing of the business undertaking will be transferred to RRVL directly. “As a result of the reorganization, Future Group will achieve a complete solution to the challenges that have been caused by the pandemic and the macro-economic environment. This transaction takes into account the interest of all its stakeholders including lenders, shareholders, creditors, suppliers and employees giving a sense of longingness to all its businesses”, Kishore Biyani, Group CEO, Future Group, said earlier. (6)

Challenges of the CCI message

Foreign relations and ties with companies boost India’s current economy, and the CCI’s message could have messed it all up. Amazon is one of India’s most prominent investors, and their market in India has grown to a more extensive scale and boosted the Indian economy. Over time, Reliance’s value has increased due to the Jio trade in the nation. India’s Jio is the largest telecom operator amassing a considerable proportion of users. The ratio is so huge enough that companies like Airtel, Vi (Vodafone+Idea) has adjusted the price because of the market that Jio has established. This has called in many investors for Jio.

Investors like Mudabala, UAE Holdings, KKR, and many more have invested in the Mukesh Ambani company making him the richest man in the country and growing to the 4th richest man World. His Reliance value has made it critical for other companies to invest or sell their stakes to him. Still, the overabundance of value that Reliance is getting as a national company fears foreign investors from investing in India. Similarly, the CCI message could bring a big blow for smaller companies calling for India’s foreign investments. Reliance’s assets bring in schemes of vast ratios, leaving a chunk of profit for the company. This could be very bad for the future of trade and investments in India, and Amazon could turn a very steep turn considering Indian work inferior and unfair, even though considering the Biyani trade to be out of choice.