In a major setback for Amazon, the Competition Commission of India (CCI) on December 13 revoked the US e-commerce giant’s 2019 deal with Future Coupons.
The 57-page long CCI order said the key reason for revoking the deal was misrepresentation and suppression of details on the deal and its purpose by Amazon.
Back in 2019, Amazon acquired a 49 percent stake in Future Coupons, the promoter entity of Future Group which in turn holds a 9.82 percent stake in Future Retail. The deal gave Amazon an indirect stake of 4.81 percent in Future Retail, which was a key player in the Indian retail market.
The competition watchdog said that the deal needs to be examined afresh and has sought 'true, correct and complete information' from Amazon which has to be submitted within 60 days. Until then the deal stands revoked, the order said.
According to the CCI, Amazon said that the rationale for this investment was the business potential of Future Coupons, to create long-term value and provide return on the investment made by Amazon.
“However, the Internal Correspondence of Amazon clearly shows different purposes for envisaging the Combination (i.e., ‘foot-in-door’ in the Indian retail sector, secure rights over Future Retail that are considered as strategic by Amazon and Commercial Arrangements between the retail business of Future Group and Amazon),” the order read.
Further, the order discloses a mail sent by Amazon India’s head of legal affairs and general counsel Rakesh Bakshi to Amazon founder Jeff Bezos on July 18, 2019, seeking approval to close the deal.
In the mail, Bakshi wrote, “Due to the recent Press Note 2 restrictions under Indian foreign investment laws, we will use a ‘twin-entity investment’ structure to invest in Future Retail.”
“The number of equity shares of Future Retail to be held by Future Coupons has been calculated such that Amazon can indirectly hold the same number of shares of Future Retail," the mail further read.
Amazon had also paid a premium of 25 percent over the share price of Future Retail during the deal to bag strategic rights and a Call Option, the mail clarifies.
The CCI’s order said that these mails reveal that Future Coupons was merely a vehicle for Amazon to acquire interest of Future Retail.
Having accused Amazon of hiding these crucial details on the actual motive of the deal, the CCI said, “Misrepresentations and suppressions are serious challenges to the trust based regulatory mechanism for combinations and the sanctity of the institutional framework established under the Act (Competition Act, 2002).”
Securing approvals by suppressing the scope and purpose from the CCI can amount to approval having obtained by way of fraud, it added.
Amazon has the option of challenging this order in courts. The company however said in a statement, “We are reviewing the order passed by the Competition Commission of India, and will decide on next steps in due course.”
The repercussions of this deal also spilled over to Future Group’s deal with Reliance Retail. In August 2020, Reliance Retail announced the acquisition of Future Group's retail, wholesale and the logistics and warehousing business for Rs 24,713 crore.
Future Group reached out to Reliance Retail after losses and debt mounted for the company, propelled by loss of sales under the pandemic.
Amazon took objection to the deal on the basis of its stake in Future Coupons and initiated legal proceedings in the Delhi High Court as well as the Singapore International Arbitration Centre (SIAC), a tussle which is also ongoing in the Supreme Court of India.
Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
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