What problem does Amazon have with the Reliance-Future Group deal?

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The biggest e-commerce giant, Amazon.com, has lately thrown a legal notice on the face of the Future Group in context with its deal with Reliance Industries. Amazon has alleged that the Kishore Biyani’s agreement with Mukesh Ambani for the sale of assets worth Rs. 24,713 crore to Reliance Industries is a violation of the agreement between Future Group and Amazon.

A spokesperson for Amazon said that the company has initiated the required procedure to enforce its contractual rights and as the matter is sub-judice any other information cannot be made public yet.

What is the agreement between Amazon and Future group?

Last year, Amazon took over 49% stake in one of the unlisted firms of Future Group, Future Coupons Ltd., which owns a 7.3% stake in Future Retail. In this transaction it gained the right to buy into flagship Future Retail after a period between 3 and 10 years.

So, how does Reliance come into the picture?

In august 2020, Reliance and Future Group had an agreement to hand over the entire retail, logistics, wholesale and warehousing units of Future to Reliance Industries. The deal is in the last stages of receiving the regulatory approvals from the concerned authorities.

The agreement entered into involves Reliance Retail, a subsidiary of Reliance Industries and Future group. As per the terms of the agreement, future group will transfer the ownership of Big Bazaar (its supermarket chain), Foodhall (its premium food supply unit) and Brand Factory’s (fashion and clothes supermart) wholesale as well as retail units to Reliance Retail.

According to the sources, Future Coupons has received a legal notice form Amazon in context with this transaction. Kishore Biyani said that he is looking forward to amicably settle this dispute, either through arbitration or mediation.

What importance does this deal hold for the companies involved?

  1. The Future Group:

The Future group was immensely pressurized by its creditors led by The State Bank of India, to repay its loans. Before actually signing the deal with reliance, Biyani tried his best to woo several corporates to sell shares of various subsidiaries of the umbrella company to cut down the humongous amounts of debt. However, it did not see much success. On the top of it, the coronavirus pandemic had put the company under more and more stress with the sales of Foodhall and Brand Factory drooping to enormously low levels. The deal with Reliance, thus, looks like an escape to this pressure for the Biyani-led company.

2. Mukesh Ambani led Reliance Industries:

Reliance has been on a funding spree, bringing in more than rupees 37,700 crore in the country in less than 4 weeks from major investors all across the globe. Reliance Retail has a network which spans supermarkets, fashion outlets, grocery stores, electronic chains as well as cash and carry wholesale business. currently it is present in 7,000 towns with a footfall of 640 million across all categories. This deal is likely to help Reliance Retail prepare for the upcoming festive season with expanding its reach further and also to launch an assault on rivals such as Amazon and Walmart on Flipkart.

What problem does Amazon have with the Future-Reliance deal?

Future Coupons Ltd., whose 49% stake is acquired by Amazon in a deal worth nearly Rs. 2,000 crore, is the promoter firm of Future Retail.

The two agreed on:

  1. Future Retail placing its products on Amazon’s online market place
  2. Products of the Future Retails would also be a part of Amazon’s new plan. This plan looks at delivering products in select cities in a timespan of less than two hours of order via Future Retails stores which are more than 1,500 in number pan India.

This deal gave Jeff Bezos owned firm a ‘call’ option. With the use of this facility, Amazon could exercise the option of acquiring all or part of Future Coupon’s promoter, Future Retail’s shareholding in the company.

But now, after Future-Reliance deal, Amazon stated that it disapproves. It said that this deal would be violation of a non-compete clause and a right-of-first-refusal pact that it had agreed on with the Future Group. As a part of their deal, Future Group was supposed to inform Amazon prior to entering into any sale agreement with third parties. Issuing its stand on the matter, the Future Group said that it had not given away any stake in the company, and the deal with reliance is only for selling its assets, therefore, in terms of the contract with Amazon.

What happens now?

Both Amazon and Biyani’s Future Group have shown interest in going and opting for an arbitration to be decided in an international arbitration centre. According to the reports collected till now, it is said that the two companies could settle on going to the Singapore International Arbitration Centre. However, this is yet to be finalised. As the two companies opt to go for arbitration, it remains unclear it the Future-Reliance deal may go through in the event of this legal tussle.

A Future group statement on August 29 revealed that if the deal is successful Biyani’s key for maths such as fbb, Big Bazaar, foodhall, easyday, brand factory, Central and Nilgiris would be transferred to Reliance Retail ventures limited. it is also known that the Future group had approached Amazon, along with the other potential buyers, to invest in the company before the deal with billionaire Mukesh Ambani led firm was signed up. At that time The E-Commerce giant declined the offer.

Amazon also holds a stake in several other retail chains such as Shoppers Stop.

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