New Delhi, Aug 31, 2020: Indian Billionaire Mukesh Ambani’s Reliance Industries acquired Ashok Biyani led Future Group for $3.4 billion (Rs 24,713 crore) to bolster its fast growing retail business.
“Reliance Retail Ventures Ltd (RRVL), subsidiary of Reliance Industries, will acquire the retail and wholesale business and the logistics and warehousing business from the Future Group as going concerns on a slump sale basis for lumpsum aggregate consideration of $3.4 billion,” the company said in a statement.
Through the deal, Reliance will acquire Future Retail that owns the BigBazaar that sells everything from groceries to cosmetics and apparel, and Future Lifestyle Fashions Ltd that operates fashion discount chain Brand Factory.
While Reliance will takeover Future Consumer Ltd, which sells food, home and personal care products, Future Group’s financial and insurance business is not part of the deal.
The oil-to-chemical conglomerate’s retail venture is India’s largest offline retail company. Despite its recent online rollout, the company is keen to expand its offline presence. Future is a good fit in Reliance’s retail that helps it expand its offline retail presence and would see further improvement in margins due to improving scale.
While Ambani’s firm has bought out all of the promoter stake in Future Retail and Future Lifestyle Fashions – the two firms that hold the Future Group business, it was not immediately clear what happens to Amazon’s holding in the Future.
In August last year, Seattle-based Amazon took an indirect stake of 1.3 percent in Future Retail as a result of purchasing 49 percent of Future Coupons Ltd. This investment allows it to buy into Future Retail after a period of between 3 and 10 years.
That partnership was deepened in January when Amazon became the authorized online sales channel for Future Retail’s stores that sell everything from groceries to cosmetics and apparel.
Reliance as well as a separate statement by Future was silent if the deal triggers an open offer to acquire 26 per cent shareholding from minority shareholders of Future Enterprises Ltd.
Future Group said it “sell by way of a slump sale the retail and wholesale business that includes key formats such as Big Bazaar, fbb, Foodhall, Easyday, Nilgiris, Central and Brand Factory to Reliance Retail and Fashion Lifestyle Ltd (RRFLL), a wholly-owned subsidiary of Reliance Retail Ventures Ltd.”
It will also sell the logistics and warehouse business to RRVL by way of a slump sale.
“RRFLL and RRVL will take over certain borrowings and current liabilities related to the business and discharge the balance consideration by way of cash,” the statement said.
After this transaction, FEL will retain the manufacturing and distribution of FMCG goods and integrated fashion sourcing and manufacturing business and its insurance JVs with Generali and JVs with NTC Mills.
The acquisition has been done as part of the Scheme in which Future Group is merging certain companies carrying on the aforesaid businesses into Future Enterprises Limited (FEL), said RIL in a statement.
Retail contributes about a fourth of RIL’s revenues. Ambani had at the company’s annual general meeting stated that Reliance is looking to find a potential strategic partner for its retail business. It may look at an IPO of the company within 3-5 years.
Future Retail operates 1,550 stores. Its flagship brands are BigBazaar, FBB and Foodhall, Easyday, Heritage Fresh, and WHSmith. Future Lifestyle Fashion operates 354 stores.
Investment from Reliance would help Future’s founder Kishore Biyani pare debt. The deal may however risk Future’s tie-up with the US online shopping giant Amazon.
The Reliance-Future deal will intensify war in India’s retail sector. Amazon has already pledged to invest USD 5.5 billion in the country, while Walmart bought local e-commerce giant Flipkart in 2018 for USD 16 billion.
While RIL also announced changes for the deal and said as part of the same Scheme Retail & Wholesale Undertaking is being transferred to RRFLL. While the Logistics & Warehousing Undertaking is being transferred to RRVL.
RRFLL will also invest Rs 1,200 crore in the preferential issue of equity shares of FEL to acquire 6.09 per cent of post-merger equity and Rs 400 crore in a preferential issue of equity warrants which, upon conversion and payment of balance 75 per cent of the issue price, will result in RRFLL acquiring further 7.05 per cent of FEL.
Commenting on the development Reliance Retail Ventures Director Isha Ambani said, “With this transaction, we are pleased to provide a home to the renowned formats and brands of Future Group as well as preserve its business ecosystem, which have played an important role in the evolution of modern retail in India.
“We hope to continue the growth momentum of the retail industry with our unique model of active collaboration with small merchants and kiranas as well as large consumer brands. We are committed to continue providing value to our consumers across the country.”
“As a result of this reorganization and transaction, Future Group will achieve a holistic solution to the challenges that have been caused by COVID and the macroeconomic environment. This transaction takes into account the interest of all its stakeholders including lenders, shareholders, creditors, suppliers and employees giving continuity to all its businesses,” said Kishore Biyani, Group CEO, Future Group.