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What went wrong with Future Retail? What is the Future Group - Reliance deal?

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Do you know who Kishore Biyani is? Don’t you?

Okay.

Have you heard of Pantaloons, BigBazaar?

Yes! This is the success story of Indian retail maverick, Kishore Biyani.

Once, the king in the retail industry with over 1500 stores in 400 cities occupying the total retail space of approximately 17 million sq. ft. in various formats. 

Now, he has sold Pantaloons to the Birlas and BigBazaar is one step away to being changed to Reliance Retail.

How has the man of ideas now come to a breaking point?

How did all of this happen?

Let’s read the entire story.

Future Groups - once India's largest retail chain is now waiting to be bailed out. Why has its brother Amazon concentrated all the efforts to put an end to the Future-Reliance deal? Why are the world's two richest men at loggerheads?

You can watch the entire legal tussle of future retail vs amazon and Future - Reliance Deal here.

Future Group - Amazon Deal

In August 2019 Amazon indirectly bought a 3.6% stake in Future Retail by acquiring 49% stake in Future Coupons. This deal gives Amazon a call option, right of refusal to purchase a stake in FRL and need to be informed before making any business decisions containing clauses prohibiting Futures Retail from selling them to anyone on a restricted person list including Reliance.

Impact of Lockdown

Due to Covid - 19 lockdown, the profitability and the business of the retail sector had come to low and so to the Future retail.

Take a look at the company’s financials.

Future Retail’s Revenue:

During July to September, the company had earned Rs. 1424Cr which is a huge fall in numbers compared to Rs. 5000Cr revenue, before covid.

Future Retail’s Loss: 

March Quarter: Rs. 479 Cr 

June Quarter: Rs. 562 Cr 

September Quarter: Rs. 692 Cr 

The loss due to lockdown mounted to Rs. 692 Cr in the September quarter alone, making it lose the fine grip over its company’s operations. 

You can see the fall in the share price of Future Retail Ltd in the following graph.

Future Graph

Future Group’s FBB had a steady decline in apparel retail market share, while its rival retail, Reliance trends had made a way to stand at first.

Apparel Market Share

In addition to the company's costs, the losses due to lockdown have added fuel to the problems of future Group. 

If you look at the revenue per Sq Ft of top 5 leading Grocery retailers - Future group has fallen behind the Reliance and Dmart, More and Spencer in the FY 2020.

Revenue per sq feet

Struggling in a grim state, Future Retail Limited wrote to Amazon India, saying that the pandemic created a significant deterioration of Future Retail’s market capitalization. It asked the big brother for financial assistance. Biyani, however, claimed that Amazon didn't come to rescue.

It actually waited a long time to be bailed out before Reliance Retail came to the rescue.

Future Group - Reliance Deal

In August 2020 Reliance Retail agreed to acquire the retail, wholesale, logistics, and warehousing operations of Future Group for Rs. 24,713 crores. As a part of the deal, Future Retail will sell its supermarket chain Big Bazaar, Foodhall, Fashion and Clothes supermart Brand Factory’s retail and wholesale units to Reliance Retail. Future group was under immense pressure from its lenders, State Bank of India, to manage its debt, and the deal was seen as a bid by the group to cut down on the same. 

SIAC order on Amazon’s Plea

In October 2020 Amazon went to SIAC and requested an interim award regarding the Future - Reliance deal, alleging FRL breached the terms of its contract. Amazon got an interim win restraining future Group from proceeding with the deal. In its recent letter, Amazon stated that Future Retail continues to be "expressly injuncted and restrained" by the interim award and is stopped from proceedings with the deal, that includes filing applications before any regulators or agencies including SEBI.

On the contrary, Future group set aside Rs 1,000 crore in an escrow account to factor for all present and future liabilities in its arbitration tussle with the global e-commerce major Amazon.

Future Group moves to Delhi High Court

Future Group moved to Delhi High Court seeking an express approval from Indian courts to go ahead with the deal since it believed that the interim order passed by the SIAC has no value under Indian laws. The Delhi High court directed Future Group to file an affidavit providing all the details of the actions taken by them after October 25 and the current status of all those actions. The court has also directed all authorities to maintain the status quo on this matter upholding the award given by the arbitrator as valid.

Later, Amazon sent a letter to the  SEBI,  BSE and  NSE asking them not to approve the Future-Reliance deal as there was an interim stay order on the same. SEBI, in response to Amazon, said that the “Company shall ensure that proceedings pending before SEBI against the entities part of the promoter/promoter group or are directors of the companies involved in the scheme, should be highlighted in the scheme document.”

In response to this, Senior Advocate Harish Salve, representing Future Retail, in his statement, mentioned that Amazon had a deal with FCPL and an agreement with Biyani. Future Coupons Limited has a shareholding agreement with the Future Retail which has no agreement with Amazon. In this petition, Amazon has alleged that Future Group, Kishore Biyani and other promoters and directors have “deliberately and maliciously disobeyed" the Emergency Arbitrage award irrespective of it being binding on them.

However, FRL-FCL-Reliance contended before the High Court that if Amazon's claim of indirect investment in FRL through FCL was accepted then it is a direct violation of Indian foreign direct investment laws. Accordingly,  only 10% investment by foreign entities is permitted in the multi-brand retail sector.

While talking about the battle with Amazon, Biyani said the Future Group will go into insolvency if it isn't acquired by Reliance or any other entity. Future Retail - Biyani has moved Delhi High Court to file an appeal against the status quo order on the deal with Reliance.

Conclusion

It seems like Future Group has no future in the battle with Amazon Vs Reliance. It is on the edge of insolvency. Very recently, SEBI banned Biyani and his family from financial markets for 15 years, while Biyani said that the securities market ban won't affect the Future-Reliance deal. Industry experts claim that too much diversification can make Future Retail lose in the game of retail.

 

Do you want to know more about business failures? Watch case studies on famous business failures here.

 

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author

Navitha