Urban Ladder, The Latest Acquisition By Reliance

Urban Ladder, The Latest Acquisition By Reliance

Reliance Industries’ Retail unit bought a 96% stake in Urban Ladder for ₹182.12 crore. Let’s take a look at various aspects of deal and what does it mean for both the entities.

Crux of the Matter

About Urban Ladder
In 2012, Ashish Goel and Rajiv Srivatsa founded Urban Ladder. So far, it has received total funding of ~$115 million from investors like Steadview Capital, Sequoia Capital India, etc.

E-Furniture Sector
India’s online furniture market size was $700 million in 2019-20, with Urban Ladder and PepperFry being the two prominent brands. This sector faces problems like infrequent purchasing by customers, high inventory cost, hard logistics, etc.

The Deal
Reliance Industries’ Retail unit bought a 96% stake in Urban Ladder for ₹182.12 crores. The company also has the option to buy the remaining 4% stake, which is expected to sell at ₹75 crores by December 2023. Three months ago, Reliance Retail acquired a majority stake in online pharma firm Netmeds for around ₹620 crores.

After this deal, Urbanladder can get out of financial problems and stop worrying about funding. According to experts, “company will continue to operate as a separate brand within the Reliance ecosystem with CEO and co-founder Ashish Goel continuing to hold his post for the time being”.

What Does It Mean For Reliance?
After making strides in the retail sector by buying Future Group and getting investments for Reliance Retail, this deal will help Reliance build a stronger and diversified retail portfolio.

Acquisitions like these enable the group’s digital and new commerce initiatives and widen the bouquet of consumer products provided by the group while enhancing user engagement and experience across its retail offerings.

  • Mukesh Ambani-led Reliance Industries has raised ₹1.15 lakh crores from 11 investors in less than 2 months and ₹53,124.20 crores from rights issue.
  • Vodafone and Idea announced a merger and renamed itself Vi. Reuters reported the Vodafone Idea merger to be valued at $23 billion.
  • Alphabet, the Parent company of Google has become one of the world’s largest technology conglomerates with a market capitalization of $1 trillion. It has acquired over 230 companies with Motorola Mobility being the largest acquisition for $12.5 billion.
  • Vodafone Group bought German telecom giant Mannesmann AG in 1999 for a $180.95 billion acquisition, making the takeover the largest merger and acquisition (M&A) deal in history.

Ebix Vs Yatra

Yatra and Ebix end their merger

Yatra and Ebix recently witnessed a deterioration of relations as the companies terminated their merger and have engaged in legal proceedings.

Crux of the Matter

Merger Times
In 2019, Ebix and Yatra engaged in a deal with the former buying the latter for $337.8 million or ₹2,323 crore. Ebix is a software-on-demand based firm in US, while Yatra is an Indian online travel agency handling the booking of over 1 lakh hotels in India.

What Went Wrong?
On 6 June 2020, an announcement regarding the termination of the deal was made. Their Merger Agreement had a clause of Outside Date (OD). It is the last date to carry out the merger. After OD, both parties have the right to walk away and no penalties are charged. In the case of Yatra-Ebix, OD was 4th June 2020.

The matters turned worse with legal involvement as Yatra opted for litigation against Ebix accusing the latter of “breach of terms” and sought “substantial damages”.

The complaint seeks to hold Ebix accountable for breaches of its representations, warranties and covenants in the Merger Agreement and an ancillary extension agreement and seeks substantial damages. As detailed in the complaint, Ebix’s conduct breached material terms of the agreements and frustrated Yatra’s ability to close the transaction and obtain the benefit of Yatra’s bargain for Yatra’s stockholders

Official Statement From Yatra

After denying the accusations of Yatra regarding merger and breach of terms in its official statement, Ebix is planning to engage in the legal process by filing a counter-suit against it.

Ebix worked diligently to fulfill its obligations under the Merger Agreement and thus strongly disagrees with the allegations set forth in the complaint.  Ebix intends to enforce all of its rights under the Merger Agreement, and is currently considering all options, including a countersuit against Yatra, on account of multiple breaches of the Merger Agreement

Official Statement From Ebix

  • Early investors of Yatra include Reliance Venture Asset Management Ltd, Web18 of TV18 Group, Norwest Venture Partners and Intel Capital invested in Yatra.com. In April 2011, the website announced funding of $28 million from investors including Valiant Capital Management, Norwest Venture Partners (NVP) under Promod Haque’s management, and Intel Capital.
  • In January 2020, food delivery app Zomato acquired the Indian operations of Uber Eats for around $350 million, which is the food delivery biz run by Uber. The transaction marks the first big consolidation move in the cash-intensive online food-delivery market, led by Swiggy and Zomato.
  • Ixigo (pronounced “ik-si-go”) is an intelligent, AI-based travel app, with over 170 million users. The app uses Artificial Intelligence for deal discovery, personalized recommendations, airfare predictions, train running information, etc. ixigo was found in 2007 and has its headquarters in Gurugram, Haryana. In March 2017, ixigo closed a funding of $15 million in Series B round by Venture Capital firm Sequoia Capital India and Fosun RZ Capital.

To Save the Elephant, Ring-fence the Dragon

The Indian government has changed FDI norms to indirectly create a firewall against hostile takeover of Indian companies by Chinese firms. Coronavirus has resulted in reduced valuation of many firms, making them vulnerable of acquisitions by the dragon.
Complete Coverage: Coronavirus

Crux of the Matter

Great Wall of FDI
The government of India tweaked Foreign Direct Investment (FDI) norms. It seems that it is primarily aimed to prevent a hostile takeover of Indian firms by Chinese companies. As per the new norm, a non-resident person or entity that resides in the nations that border India can only invest in Indian firms after government approval. If a Chinese company has invested in an overseas firm, which in turn invests in an Indian firm (such a Chinese firm would be categorized as Beneficial Owner), then also the new FDI norm would be applicable.

Concerns for India began to rise when China’s central bank, People’s Bank of China bought 1% stake in Indian’s leading private sector lender HDFC. It also must be noted that this FDI norm was in place for investors from Pakistan and Bangladesh. Many also say that India’s strategy for ringfencing investments from the dragon are being mulled over from mid-2019

Supporting Measures
Indian government has also asked the Securities and Exchange Board of India (SEBI) to provide details on investments by nations in the Foreign Portfolio Investments (FPI). SEBI will specifically look for ‘Beneficial Owners’ from Pakistan, Myanmar, Iran, Taiwan, and North Korea based on the government directive. This move seems to be aimed at figuring out management or ownership by Chinese firms in domestic companies.

On a different note, the government has indirectly put a cap on FPI investments as well. Any FPI investment above 9.9% in a firm is directly considered FDI. And now FDI required government sanctions, therefore, FPI investors cannot invest beyond 9.9% in an Indian companies without government permission.

We hope India would revise relevant discriminatory practices, treat investments from different countries equally, and foster an open, fair, and equitable, business environment. Additional barriers set by India for investors from specific countries violate WTO’s principle of non-discrimination, and go against the general trend of liberalization and facilitation of trade and investment.

Ji Rong, Spokesperson, Chinese Embassy

India’s Worries
India’s startup ecosystem may take a hit as many of them receive funds from China. 19 out of 30 unicorns of India are funded by China. It has also invested nearly $4 billion as greenfield investments in Indian startups.

The spending capacity of Chinese firms comes from the prevailing low-interest rates for business in the economy and the recently announced aid in the stimulus package. Apart from that China can support the acquisition of foreign firms with its $3.107 trillion forex reserve. To save domestic firms from takeover by the dragon, many countries in the European Union like Germany, Spain, and Italy have also implemented stricter FDI guidelines and many other nations are mulling over it. These companies are vulnerable because they are not able to pay their debts and are willing to sell the stake to any potential buyer.

  • Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. FDIs are distinguished from portfolio investments (FPIs) in which an investor merely purchases equities of foreign-based companies.
  • A green-field investment is a type of foreign direct investment (FDI) in which a parent company creates a subsidiary in a different country, building its operations from the ground up. The term “greenfield investment” gets its name from the fact that the company—usually a multinational corporation (MNC)—is launching a venture from the ground up—plowing and prepping a green field.
  • China’s central bank, People’s Bank of China invested a little over 1% in HDFC. As per the shareholding disclosures for the March quarter, the People’s Bank of China held 1.75 crore shares of HDFC. The particular time and date of investment are not known though. These investments could have been done on any day in the first 3 months of 2020.

CCI targets stricter laws to regulate tech giant M&A

The government is likely to amend the Competition Act, i.e. Merger Regulation Law. Tech giants present in India may get stricter laws to abide by.

Crux of the Matter
  • To maintain equilibrium in the local competition, the government has planned to introduce a new set of rules for Mergers and Acquisitions (M&As) of companies.
  • Competition Commission (CCI) of India will enforce this law.
  • Only assets size and revenue are taken into consideration to regulate M&As of companies but now deal size will also be included in the scrutiny process.
  • Need for amendment arose when Facebook acquired WhatsApp in a deal worth $19 billion that affected the local competition in several ways.
  • According to the new amendment, individuals companies involved in M&As having assets in India worth over Rs. 1000 crores or revenue over Rs. 3000 crores will need CCI approval.
  • For companies having global partners possessing assets worth at least Rs. 500 crores or sales worth Rs. 1500 crores in India will also need CCI clearances.
  • “We want an enabling provision in the law so that we can deal with M&As better,” said CCI Chairman Ashok Kumar Gupta.

Competition Commission of India – Competition Commission of India is a statutory body of the Government of India responsible for enforcing The Competition Act, 2002 throughout India and to prevent activities that have an appreciable adverse effect on competition in India. It was established on 14 October 2003. It became fully functional in May 2009 with Dhanendra Kumar as its first Chairman. More info

Competition Act 2002 The Competition Act, 2002 was enacted by the Parliament of India and governs Indian competition law. It replaced the archaic The Monopolies and Restrictive Trade Practices Act, 1969. Under this legislation, the Competition Commission of India was established to prevent the activities that have an adverse effect on competition in India. More info