Why Has Amazon Sent Notice To Future Group Over Reliance-Future Deal?

Why Has Amazon Sent Notice To Future Group Over Reliance-Future Deal?

In August 2020, Future Group made a deal worth ₹24,713 crores with Reliance to sell Future’s retail business. Amazon, however, recently issued a legal notice to Future Group which states that its deal with Reliance was a breach of contract. How is suddenly Amazon into the picture and what contract did it have with Kishore Biyani’s Future Group? Let’s find out.

Crux of the Matter

Legal Battle
With an outstanding debt of ~₹13,000 crores, Future Group was debt-laden and the Covid-19 crisis increased the problems for Future Group. So in August, it sold its Retail business for ₹24,713 crores to Reliance Retail.

Amazon sent a legal notice to Future Group for violating its “contractual rights” in the deal made with Reliance.

Why Is Amazon Objecting?
It all started with Amazon buying a 49% stake in Future Coupons Ltd, which contributes 7.3% stake in Future Retail Group, in 2019. This translates to Amazon holding ~5% stake in Future Retail. As a part of the deal, Amazon had the right to buy (a call option) all or part of shareholding in Future Retail after a period between 3 and 10 years of the deal.

The deal also included “a restricted list” of companies – mostly competitors with the name of Reliance explicitly mentioned – that Future was not supposed to sell the business to without making an offer to Amazon. Amazon says Future Group did not inform Amazon of the deal in progress. Amazon has taken the matter to Singapore International Arbitration Centre for resolution.

What Future Group Has To Say?
Future Group says it had reached out to Amazon while it was facing issues due to lockdown, but it kept delaying without any concrete commitments. One of Future’s close associates said Amazon was kept in the loop while the Reliance deal was in progress.

Future Group also says that it has not violated any agreement as the deal with Reliance does not involve any sale of ‘stake’ but involves only the sale of Future Group’s ‘assets’. Amazon says this deal is deliberately structured to oust Amazon.

The Reliance-Future Group deal involves combining 5 listed entities of Future Group into 1, and transferring the ‘retail assets’ to Reliance – this structure obviates the need for a stake sale.

Views Of Legal Experts
Experts also say that Amazon cannot challenge the deal as it involves only listed entities, whereas it has sent a notice to and had an agreement with Future Coupons, which is an unlisted firm.

Moreover, as per Future-Amazon agreement, Amazon’s rights to buy promoters’ stake only comes into effect after 2022. This right is also based on the condition that FDI rules regarding investment in retail firms change in India. Currently, India does not allow E-commerce companies to own stake in entities that sell on their platforms – here Future Group sells products on Amazon.

Curiopedia
  • Pantaloons is one of the major clothing retail outlets in India with over 350 stores in 160 cities. Pantaloons was previously controlled by the Future Group, and was taken over by Aditya Birla in 2012-13.
  • Alternative dispute resolution typically denotes a wide range of dispute resolution processes and techniques that act as a means for disagreeing parties to come to an agreement with the help of a third party. Alternative dispute resolution (ADR) is generally classified into at least four types: negotiation, mediation, collaborative law, and arbitration.
  • Amazon Go is a chain of convenience stores in the United States, operated by the online retailer Amazon. The stores are partially automated, with customers able to purchase products without being checked out by a cashier or using a self-checkout station. As of 2020, there are 27 open and announced store locations.

Reliance Books A Big Bazaar in The Organized Retail Market

Reliance Books A Big Bazaar in The Organized Retail Market

After a spree of foreign investments in the petro to tech conglomerate Reliance, it recently acquired Future Group’s retail, wholesale, logistic, and warehousing business, which include the likes of Big Bazaar, FBB, Brand Factory, etc for ~₹24,713 crores. With this takeover, Reliance will dominate the retail business in India, which is estimated at $89 billion. Let’s take a look at how the landscape of the industry has shifted.

Crux of the Matter

Reliance To Get A ‘Big Bazaar’
Future Group’s decision to sell its retail came when the group ran out of all options to save its retail business from heavy debts and losses. Reliance Industries Limited bought Future Group’s retail, wholesale, logistics, and warehousing business for ~₹24,713 crores. RIL’s Subsidiary Reliance Retail Venture Limited (RRVL) will takeover logistic and warehousing business and Reliance Retail and Fashion Lifestyle Limited (RRFLL), a subsidiary of RRVL will takeover retail and wholesale business.

Future Group

  • Kishore Biyani (CEO) formally founded Future Group in 2013.
  • It is divided into various subsidiaries such as Future Retail Limited, Future Lifestyle Fashion Limited, Future Consumer Enterprise Limited, etc.
  • Biyani in May 2012 sold 50.1% stake of its fashion chain Pantaloons to Aditya Birla Group to reduce the debt of ~₹8,000 crores.
  • In August 2020, Reliance Retail acquired its retail, wholesale, logistics, and warehousing business, which include it larget and India’s pioneer retail brand Big Bazaar, for ~₹24,700 crores.

Short History Of Future Group

  • 1987 – Launched pantaloons and incorporated company under the name of Manz Wear Private Ltd.
  • 1991 – Changed company’s name to Pantaloon Fashions (India) Limited.
  • 1992 – Company came up with Initial Public Offer (IPO) of shares.
  • 2001 – Pantaloon Retail launched three Big Bazaar stores in Kolkata, Bangalore, and Hyderabad.
  • 2002 – Launched Food Bazaar food chain.
  • 2004 – Launched Central mall in Bangalore.
  • 2006 – Big Bazaar launched the shopping festival Sabse Sasta Din and Navaras jewelry store within Big Bazaar stores.
  • 2007 – Big Bazaar launched its 50th store in Kanpur.
  • 2008 – Launched FBB and Big Bazaar and Big Bazaar expanded to 100th store.
  • 2010 – A subsidiary of main retail Future Value Retail Limited is formed and future Group launched ‘The Great Indian Shopping Festival’.
  • 2013 – Launched India’s largest Logistical Distribution Hub at Nagpur.
  • 2015 – Future Retail formed a partnership with Bharti Retail and Patanjali.
  • 2018 – Big Bazaar dropped prices of 1,500 everyday items with the tagline ‘Har Din Lowest Price’.
  • 2019 – Amazon acquired a 49% stake in Future Coupons.

Curiopedia
  • Na Tum Jaano Na Hum is a 2002 Indian Hindi-language romantic drama flop film produced by Future Group owner Kishore Biyani. Despite having a cast of Saif Ali Khan, Hrithik Roshan, and Esha Deol; the film was a box office disaster.
  • With Dipayan Baishya, Biyani co-authored the book It happened in India: The Story of Pantaloons, Big Bazaar, Central and The Great Indian Consumer. As of 2007, it was the best-selling business book ever published in India, with sales of over 100,000.
  • Brand Factory is a chain of retail stores operated by Future Group. It is one of India’s largest discount retail chains and offers a wide range of apparel brands in different categories for men, women, infants, accessories, cosmetics, footwear, sportswear and luggage.