All You Need to Know About The RIL-Future-Amazon Tussle

Future Group companies share had risen sharply after Reliance Retail Ventures Ltd (RRVL) said it is acquiring the Future Group Company’s retail, wholesale, logistics, and warehousing business at the end of August. Reliance Industries Ltd’s (RIL) unit is RRVL.

High leverage and covid impacted the toll of the Future Group’s fortunes, and RIL’s rescue act was initially a sigh of relief for minority investors. But, with time, they realized the deal didn’t hold enough value, and stocks of the Future Group firms have corrected meaningfully between 38 and 55 percent.

Himanshu Nayyar, an Analyst, Yes Securities Ltd, said, “Factors influencing this was that there was nothing much for minority equity shareholders, where the deal value was just provided the payoffs for the debt. It can be called a distress sale. Another factor was that there was always a fear of arbitration and the deal going smoothly, has now materialized with Amazon acquiring the favorable verdict in Singapore for putting the deal to hold.”

Against this backdrop, Amazon has acquired an interim relief in a Singaporean arbitration court for putting the RIL-Future deal on hold, making things potentially worse for minority investors. There will be a declination on Future Group’s value as the case drags on, and stocks of group firms will witness further downward pressure.

Govind Shrikhande, a Former Managing Director, Shoppers Stop Ltd, and a veteran of the retail industry says, “This is a complex situation when the FDI rules in the multi-brand retail are not fully clear.” Also, an issue is hanging as the Indian jurisdiction rules are more relevant in this case.

As per Shrikhande, four broad possibilities are predicted to play out.

Shrikhande stated the possibilities, stating, “It begins with RIL fast-tracking the permission completion, and is followed by the deal in real, which is delayed for weeks/months and Future has penalty issued by Amazon. Next is Amazon winning favorable decision for stopping the deal and anchoring a new deal, surging to multi-brand FDI hurdles. The last possibility is to deal getting delayed unprecedented, where Amazon and Reliance flushing interest, resulting in the destruction of Future Retail’s value.”

Sweta Patodia, Analyst, Corporate Finance Group, Moody’s Investors Service, said, “The decision results in delaying RIL’s expansion plans for a retail footprint in India.”

On Monday, RIL’s shared ended at 4 percent lower. Reliance Retail is India’s largest retailer, however, the deal was expected to fast-track its growth plans.

On 31 August, CLSA Analysts said, “The acquisition further strengthens Reliance’s position as India’s largest retailer through expansion in retail outlets by 15 percent and retail footprint and warehousing area by 80+ percent. It also adds 4.1 percent to Reliance’s market share of organized retail, taking it to 17.8 percent.”

The sum is that the current fracas is resulting in value erosion for shareholders, where they will undoubtedly hope for a quick and more relatively shareholder-friendly solution.

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