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The ‘Future looks bright for the Biyani-Reliance deal as it concludes on equal grounds

Biyani, Reliance, and Amazon are back on the news, and this time, it's a victory for the two "Indian" Giants as they now reac

2020 has been a year of drama for everyone as well as for Mr. Kishore Biyani. The man who’s industrialism and idea of a common man revolution had sparked The Future Group’s birth. The Future group was very famous; their franchises included the Big Bazaar, one king of the market that sold the product at huge discounts that appealed to the market. Ever since its inception, huge lines and a cluster of customers would through on the weekend to go home with a huge bad of products for the household; it was a kind of experience that falters today in the current market scenario. The Future group was a conglomerate that sold value for respect, and that is how their goodwill grew with time.

The Future Group, run by Kishore Biyani, is the Country’s biggest retailer. Selling all consumer-friendly products at consumer-friendly prices, they have seen success grow at phenomenal rates over time. One of the main reasons for their success is their value more on consumers than any other economic element. The Biyani deal’s history may not be of immense importance, but it has value in acknowledging such businesses’ lifespan in a large economy like India. With a population of 1.3 billion, it only requires companies like the Future Group to succeed with a unique marketing technique.

But then June 2020 told a different story, Kishore Biyani’s Future Group was in talks with Mukesh Ambani’s Reliance Retail to sell its flagship Future Retail to pay outstanding debts. The companies had reached an agreement on certain terms and conditions, and an agreement worth Rs 24,000-27,000 crore was signed. The deal made RIL the number one player in India’s brick-and-mortar space across categories such as fashion, grocery, and merchandise, leading to Biyani’s exit from the retail business. The company then made a final call to the Reliance Retail stake sale during the board of directors’ meeting on Saturday. The meeting was crucial as it follows from Rs 100 crore interest payment on senior secured dollar notes, the deadline of which-after a grace period of 30 days-ended on Aug. 21. Failure to pay interest would have placed Future Retails Ltd in the default category (1).

Although the sale with Reliance occurred, the Amazon deal was still underway. Amazon has a 7 percent stake in the Future Group and a 49 percent stake in the Future Coupons. The multinational e-commerce organization has decided to purchase the company within three years or 3 to 10 years. The sale of Reliance made Amazon furious. They, therefore, approached SEBI and SIAC for arbitration in Singapore. Amazon won the interim, and they were going to stay for the deal. Amazon believed that the sale violated the terms of the legal agreement between the two companies and that the agreement with Reliance would have made them the largest retailer ever since (2).

The Current scenario

Indian stock exchanges approved the 3.4 billion dollar deal between Reliance Retail and Future Group retail giants in yet another setback for Amazon, which invested more than 6.5 billion dollars in the world’s second-largest internet market and sought to block the deal. The Bombay Stock Exchange stated in a notice that it had spoken to the Indian market regulator, the Securities and Exchange Board of India, and had no objection or objection to the agreement.

Although The Future Group had a pre-existing deal with Amazon, Biyani reached out to Reliance to prepare a deal worth 24000 crores. Reliance is one of the world’s largest companies to handle various sectors such as fashion, technology, and so on. Biyani knew that selling his business would be the monopoly of Reliance on the market and could gain traction by attracting potential customers from other retailers (3).

On Wednesday night, the Securities and Exchange Board of India (SEBI) gave the go-ahead to the 24713 crore deal by Reliance Industries to purchase the Future Group’s retail assets. The Bombay Stock Exchange granted its “no adverse observation” report to the 24713 crore agreement, based on the market regulator’s approval. In August 2020, Reliance Retail Ventures Limited (RRVL), a subsidiary of Reliance Industries, announced that it had acquired the retail and wholesale, logistics and warehousing business of the Future Group lump-sum aggregate consideration of 24713 crores.

Amazon (4) had filed a petition before the High Court of Delhi seeking a stay on the Future-Reliance Agreement. However, the High Court of Delhi rejected Future Retail’s plea that Amazon should not interfere with its relationship with Reliance Retail based on the Singapore International Arbitration Centre’s interim order. The Indian Securities and Exchange Board, with some riders, has made the deal possible. The market regulator argued that the dispute pending before the Delhi High Court and the arbitration proceedings brought by the global e-commerce major Amazon contesting the deal should be specifically referred to by Future Group while seeking approval from the shareholders and the National Company Law Tribunal.

The Prologue – what happened

Over the years, the Future Group has incurred heavy debts. As of Sept. 30, 2019, the debt of the listed entities of Future Group rose to 12778 crores from 10951 crores as of Mar. 31, 2019. He had the March deadline for the payment of some of these fees. But the Indian Reserve Bank’s loan moratorium has provided a breather. The market buzz about its inability to service debt began in mid-February, sending group-owned companies crashing and triggering downgrade ratings. Lenders sought more shares as collateral against Biyani’s loans. Coronavirus’ pandemic crippled its operations, and shutdowns and subsequent cash crunch forced it to default on debt (5).

Biyani became over-ambitious in core retail and focused on the neighborhood format stores EasyDay, Nilgiris and Heritage backfired. He invested heavily in these ventures, but they did not succeed. His excitement at the FMCG business of the group, Future Consumer, proved particularly contagious. He dreamed of increasing the Rs 2000 crore business to Rs 20,000 crore by 2021. The group has 990 EasyDay stores; it shuts down 150 as of in the third quarter of 2020. Almost 35 to 40 percent of the goods in Future Group formats were its brands, which failed to attract customers. This has led to heavy losses for the company.

Enter, Amazon

Amazon agreed to purchase 49 percent of one of Future’s unlisted companies Future Coupons Ltd last year with the right to purchase Future Retail Ltd’s flagship after a period of three to ten years through convertible warrants. Future Retail operates popular supermarkets and hypermarket chains such as Big Bazaar. Amazon sent a legal notice to Future Coupons alleging breach of contractual obligations by announcing a deal with Reliance Retail. Sources said that, according to a non-competing pact between Future Coupons and Amazon, the former could not sell to RIL, as its name was specifically mentioned in the restricted list (6).

For its part, the Future Group stated that it had not sold any stake in the company and merely sold its assets and had therefore not violated any of the terms of the contract. In line with this, Amazon also sent a letter to the Indian Securities and Exchange Board, the Bombay Stock Exchange, and the National Stock Exchange asking them not to approve the Future-Reliance Agreement, as there was an interim stay order. Requesting the departments to remain aware of the stay order, Amazon has learned to say that if the deal were to be concluded, it would show companies worldwide that the orders of renowned courts, such as the Singapore International Arbitration Centre, have not been complied within India (7).

The complaint came after Amazon on Oct. 25 won an injunction from the arbitrator to stop the Future-Reliance agreement. The legal dispute then reached the High Court of Delhi, where Future Retail had urged the court to stop Amazon from writing letters to regulators to block its Reliance Agreement, which had been pending approvals from the market regulator stock exchanges. The Singapore International Arbitration Centre then rejected the request that Future Retail not be considered for arbitration in its dispute.

After that, the deal was then put on hold.

CCI – The game-changer

Now, Amazon had high hopes for their victory, and in India, Biyani was still adamant about selling to Reliance itself for the pan India experience. This was all going fine for amazon until a new character jumped up, the CCI. The role of CCI was to establish the betterment of competition in the Country and prevent malpractices and ensure Fairplay. The Indian Competition Commission approved the sale of holdings by Future Retail to Reliance Industries Ltd. This was then a huge setback for Amazon, and they demanded further investigation into this. Remember, Biyani and Amazon still had a contract (8).

In a tweet, the regulator stated that it had approved the acquisition by Reliance Retail Ventures and Reliance Retail and Fashion Lifestyle Limited of Future Group Retail, Wholesale, Logistics & Warehousing Enterprises. Deals beyond a certain threshold require approval by the Indian Competition Commission, which keeps a record of unfair business practices across sectors. “The Transferor Companies consist of listed and unlisted companies, primarily engaged in Retail, wholesale, logistics and warehousing. ‘These companies operate across India and include retail operations across segments such as food and grocery footwear and accessories, other goods, etc.,” the Notice said (9).

This drew flak on all social media platforms. Many also indicated the dying relationship of India and amazon. Many users also told how this would be a bad example that Indian is playing for their own economic growth. Certainly, though, it was a move that shook many industrialists. To turn away from a huge company like Amazon would mean to have several unpolite commercial relations with foreign corporate bodies in the Future.

A journey in the making

Kishore Biyani was shot to popularity when she got stuck in a legal battle with Amazon, the US-based online retail giant. This legal issue arose when both companies were in an emergency arbitration situation due to a contract breach. According to Mr. Biyani, the Future Group has approached Amazon several times, seeking help from the troubled financial situation, but Amazon has refused even after the lenders have invoked shares (10).

The economic position of the Future Group deteriorated further as the pandemic crisis began. Mr. Biyani had no choice but to sell his retail business, logistics, and warehouse to RRVL, Reliance Retail Ventures. The company is the retail segment of RIL, The Reliance Industries Limited, controlled by Mukesh Ambani. The deal was reached, and it led Mr. Biyani to state that Reliance Retail had come to them as a savior. At this point, the sale of their assets was the most crucial bailout arrangement. He also said that Amazon was a company that was languishing. Amazon was trying to derail the acquisition of assets of the Future Group by Reliance Retail.

Mr. Biyani, who is regarded as the Indian retail kingpin, had contacted Amazon several times and informed them that Reliance had contacted him several times. Initially, Amazon had always supported them and was not opposed to acquiring the Future Group. But when it came to save them out of their financial emergency, they were struggling. At this time, Reliance Retail helped the Future Group and took over the company to help them get out of their critical financial situation. For this reason, Mr. Kishore Biyani believes that Reliance is a savior to those who backed them in time of need.