Amazon takes on Future Group over deal with Reliance
American e-commerce major Amazon has served a legal notice on the Future Group for striking a deal with Reliance Industries (RIL), citing its non-compete agreement with the Kishore Biyani-led chain. According to the notice, the Future-RIL transaction cannot go ahead without Amazon’s approval because of the non-compete clause entered earlier with the retail group.
A top industry source said the notice was unexpected as Biyani had first approached Amazon for a takeover of the Future Group companies before defaulting to its lenders and suppliers. “It was only after Amazon said no, that the Biyani group started talking to Reliance,” said a banker close to the development. “Anyway, RIL bought the assets and not the company,” he said.
On August 29, Reliance Retail Ventures Limited (RRVL) had announced a deal to acquire the entire retail, wholesale, logistics and warehousing businesses of the Future Group on a going concern basis for Rs 24,713 crore. Lenders, who had substantial exposure to the Future group, had supported the transaction. Post deal, Future Enterprises Ltd (FEL) — in which all Future group companies were merging — was left with consumer products business and stake in two insurance ventures.
“The transaction was announced in August and, surprisingly, Amazon is taking legal steps now,” said another source. Amazon had in December 2019 picked up a 49 per cent stake in Future Coupons Ltd, a promoter entity, for Rs 1,430 crore. Future Consumer (FCL), in turn, held 7.2 per cent in Future Retail Ltd (FRL). The entire proceeds were ploughed back into Future Retail. But the pandemic hit Future Retail hard. Zero cash flow and multiple store closures through the first few months of the lockdown prevented the company from any recovery.
“Amazon lost around $193 million in its Future investment. The legal action against Future is to ring-fence itself from any class action suit back home in the United States as shareholders may ask questions why they lost money in Future,” said another banker.
When contacted, Future Group and RIL spokespersons declined to comment on the matter.
According to e-commerce industry sources, when Amazon had invested in Future Coupons last year, it had received certain rights under the contractual agreements. The non-compete restrictive clause was one such.
An executive in the know pointed out that when Reliance and Future entered the deal, Amazon was not kept informed. For the last few months now, Amazon has been making attempts to reach out to the Future Group without any success, he said.
“So, Amazon is left with no other choice but to serve them a legal notice as they have breached the contractual agreement,” the executive added.
The Jeff Bezos-led e-commerce giant already owns 49 per cent in More – a brick and mortar supermarket chain. Samara Capital holds the rest of the equity in More. Both made an investment of $450 million in 2018 and followed up with an additional $37 million last month.
Currently, only 7 per cent of the $1.2-trillion retail market is online.