Amazon Vs Future Retail-Reliance: Khela Hobe Vs Khela Khatam?
Newspaper: Avenue Mail
Date: 9th August 2021
One of the most bitterly fought court cases running in India today is unquestionably the tussle between global behemoth Amazon Inc. and India’s giant Reliance Industries Ltd. The point of contention is the Rs 24713 crore sale of India’s foremost retailer Future Retail to Reliance Retail. The spotlight is on three men who are known be the masters of their respective games. The world’s richest man Jeff Bezos, India’s richest man Mukesh Ambani and the founder of modern trade in India, Kishore Biyani. If we were to profile the three men and their globally acclaimed companies, one would get a sense of pure passion, dedication, a madness to win the customer and being one step ahead than their competitors as their key traits.
Both Jeff Bezos and Kishore Biyani are first generation titans of their businesses while Mukesh Ambani is a second-generation industrialist, son of one of the most respected Indian business pioneers, Dhirajlal Hirachand Ambani. Mukesh took over the burgeoning empire of his father and nurtured it manifold in size to be named the richest man in Asia and one of the top 5 richest in the world.
Future Group was constructed brick by brick to encapsulate the sheer vision of Kishore Biyani who is also known as the father of modern retail in India. Over twenty years of toil and hard work he built one of the most aggressive, dominant, and innovative companies in India which redefined the way the Indian consumer shopped for his daily needs.
The flagship brand Big Bazaar under Future Group was founded by Biyani in 2001 with the first store in Kolkata which was a success from day one. Big Bazaar changed the retail landscape in India and got the country shopping in modern stores away from the traditional Kirana or mom and pop stores. Foraying into tier-2 and tier-3 towns, the brand changed the way India shopped and brought their monthly clothing and grocery needs.
The mouth watering discounts and mega deals drove millions of people to the brand. Biyani pioneered the concept of celebrating Independence Day and Republic Day as ‘Big Days’ and later as ‘Sabse Saste Paach Din’ (SS5D) which was emulated by other brick and mortar retailers and e-commerce giants. His idea of rejoicing a mundane middle of week day as ‘Wednesday Bazaar’ changed the way the shoppers queued up for 1kg of sugar on a Wednesday. The company was bullish about its future and prepared a vision document to become one of the largest FMCG (fast moving consumer goods) companies in the next few decades, owing to the success of its privately labelled own food brands. Post 2015, Future group ambitiously began acquiring companies- Bharti Walmart JV, the Easyday stores, the Heritage stores and the franchise operated stores of Nilgiris which put pressure on its finances.
To their credit its noteworthy that the promoters of Future Group depended only on retail for their cashflow in contrast to its bitter rival Dmart (real estate), Reliance (oil and natural gas), More (part the Birla conglomerate) and Star Bazaar (part of the Tata group).
To invite more investors into the business, Future Group entered into an agreement with Amazon in August 2019 to invest in a Future Group promoter entity, Future Coupons to buy a 49% stake for Rs 1,500cr giving Amazon a 3.6% stake in Future Retail. This decision was to come back to bite Future Group within a year. Amazon invested with an option of buying into the flagship Future Retail after a period of three to 10 years.
The doyen of Indian retail, Kishore Biyani had the most difficult decision at hand in May 2020 during the first wave of the Covid-19 pandemic, to sell off the company to his rival- billionaire Mukesh Ambani due to depleting cash flows due to lockdowns and closure of stores.
After hectic negotiations, Biyani bit the bullet when Future group announced a deal to sell off the retail, wholesale & logistics business in a slump sale for Rs 24,713 cr to Reliance Retail in August 2020. Infuriated by the decision, Amazon scrambled its legal team and filed a case Singapore-based Emergency Arbitrator to restrain FRL from proceeding with the deal in October 2020. Amazon has a keen eye on the exploding retail market in India and considers Reliance its long-term rival. Future Retail which controls a significant pie of the sales, data and customers became a point a contention.
The Singapore International Arbitration Centre (SIAC) passed an interim award in favour of the US E-Commerce giant and the deal stalled. Meanwhile Biyani wrote a passionate letter to the employees, vendors and stakeholders saying “The RIL transaction considers the interest of Future Group’s stakeholders, including supply partners, vendors, lenders, creditors, and employees, Biyani said in his letter to supply partners”.
The Reliance- Future Group camp appointed the top most lawyers to argue its case in the High Court in New Delhi pleading the court to pronounce the interim award of the SIAC invalid and be allowed to proceed to conclude the deal. In Dec 2020, Future Retail moved Delhi High Court in a suit, that sought to restrain Amazon from writing to regulators namely the Securities and Exchange Board of India and National Company Law Tribunal to not approve the deal.
After several back-and-forth decisions by the lower courts on the validity of the verdict of SIAC and the deal per se Amazon moved the Supreme Court, challenging lifting of the stay on FRL-RIL deal, by the lower court. Amazon has repeatedly argued that in the 2019 deal the agreement contained clauses saying the Indian group couldn't sell its retail assets to anyone on a "restricted persons" list, including Reliance. Amazon argued that the Delhi High Court's order was "illegal" and "arbitrary" and the company, which has committed $6.5 billion in investments in India, would face "irreparable harm" if the Supreme Court of India did not intervene.
Supreme Court Justices R F Nariman and B R Gavai reserved their orders on July 29th 2021 and the verdict was passed on 6th of August 2021 that the Singapore Emergency Arbitrator decision to restrain Future Retail from going ahead with its merger with Reliance Retail is valid and enforceable and falls within the ambit of Arbitration and Conciliation Act. Point to note is the Supreme Court judgment is confined to the enforceability of Emergency Arbitrator Order and the judgment does not deal with the merits of the Future Retail merger with Reliance and the final decision is awaited. A review petition may be filed by Future Group in the days ahead.
While Future Group and Reliance Retail stocks tumbled in the stock market following the ruling of the Supreme Court, Amazon spokesperson: “We welcome the verdict of the Hon’ble Supreme Court of India upholding the Emergency Arbitrator’s award. We hope that this will hasten a resolution of this dispute with Future Group.”
Future Group has consistently argued in higher and lower courts that the deal with Reliance secures a bright future not only for the company but also its employees, contract workers, vendors and investors. If the deal does not materialise, thousands of lives and livelihoods are at stake. Looking at the larger picture, the retail industry in India is a US$ 900 billion market with a potential to cross over a trillion dollars by 2024. Mergers and acquisitions forces consolidation of the industry which leaves the keys of the burgeoning retail industry in the hands of the super-rich namely Amazon, Reliance and Tatas.
Whoever wins the final court verdict, it is the future of the multi-billion-dollar Indian retail industry, the employees, the stakeholders, and lastly the Indian consumer that is at stake. May the best man or men win!