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Reliance Retail-Future Group deal: RIL unit adds Future Group’s retail business to shopping cart for Rs 24,713 crore

Mukesh Ambani company emerges as white knight and averts collapse of vast retail group built by Kishore Biyani over three decades.

September 03, 2020 / 03:30 PM IST

Kishore Biyani has surrendered the ‘crown jewel’ of the Future Group by selling his retail business to billionaire Mukesh Ambani’s Reliance Retail in a stunning reversal of fortunes for a businessman who was once celebrated as India’s Retail King.

The mega transaction, which also includes the wholesale, logistics and warehousing business of the Future Group, has a combined value of Rs 24,713 crore and cements the position of Reliance Retail as the undisputed leader in the organised retail segment and adds muscle to its ongoing battle with Amazon for the Indian e-commerce market.

The Future Group houses leading retail formats, including supermarket chain Big Bazaar, upmarket food stores Foodhall, and bargain clothing chain Brand Factory. The acquisition is being done as part of a scheme in which Future Group is merging certain companies carrying on the aforesaid businesses into  Future Enterprises Limited (FEL).

As a part of the scheme,

  1. the  retail and wholesale Undertaking is being transferred to  Reliance Retail and Fashion Lifestyle Limited (RRFLL), a wholly-owned subsidiary of RRVL( Reliance Retail Ventures Ltd)

  2. the logistics & warehousing undertaking is being transferred to RRVL

  3. RRFLL also proposes to invest Rs 1200 crore in the preferential issue of equity shares of FEL to acquire 6.09 percent of post-merger equity and Rs 400 crore to acquire warrants convertible into equity shares of FEL, which will result in RRFLL acquiring further 7.05 percent of FEL.

“The acquisition of the retail, wholesale and supply chain business of the Future Group complements and makes a strong strategic fit into Reliance’s retail business. This will help Reliance retail to accelerate providing support to millions of small merchants in increasing their competitiveness and enhance their income during these challenging times,” said Reliance Retail Ventures Ltd in its official statement.

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“Future’s portfolio composition in apparel, general merchandise and own FMCG brands will allow for a wider offering to its customers,” the firm further added. RRVL reported a consolidated turnover of Rs 162,936 crore and net profit of Rs 5,447.96 crore for the year ended March 31, 2020.

The deal with Future Group also makes Reliance Retail more attractive for potential global partners and suitors. Addressing shareholders in RIL's 43rd annual general meeting, Mukesh Ambani had said the company has "received strong interest from strategic and financial investors in Reliance Retail."

Speaking on the mega deal, Isha Ambani, Director, Reliance Retail Ventures said, "With this transaction, we are pleased to provide a home to the renowned formats and brands of Future Group as well as preserve its business ecosystem, which have played an important role in the evolution of modern retail in India. We hope to continue the growth momentum of the retail industry with our unique model of active collaboration with small merchants and kiranas as well as large consumer brands. We are committed to continue providing value to our consumers across the country."

THE ROAD AHEAD FOR FUTURE GROUP

The deal was crucial for Biyani-led Future Group which came under immense pressure from the lenders' consortium led by SBI to address its rising debt which stood at Rs 12,778 crore as of September 2019.

In its official statement, Future Group said, “ Post this exercise, FEL will emerge strong with businesses in manufacturing and distribution of FMCG products and integrated fashion sourcing and merchandising. These businesses will further benefit from supply agreement with RRFLL. This deal will also enable FEL to focus on the creation of new-age brands in the FMCG and fashion space and expand its reach. The transaction will help FEL to expand with a focussed business model and a stronger balance sheet.”

“As a result of this reorganisation and transaction, Future Group will achieve a holistic solution to the challenges that have been caused by COVID and the macro-economic environment. This transaction takes into account the interest of all its stakeholders including lenders, shareholders, creditors, suppliers and employees giving continuity to all its businesses,” said Kishore Biyani, Group CEO, Future Group.

“We are pleased that our strong retail franchise and brands, that we have created over time, are going in stronger hands and will continue to grow and delight Indian shoppers,” Biyani added.

THE RESCUE ACT BY RELIANCE RETAIL

Biyani’s exit from a business he had painstakingly built over three decades was forced by a rising pile of debt and the searing pain wrought by the COVID-19 pandemic. Through Saturday’s deal, Reliance Retail, controlled by Ambani, Asia’s richest man, has emerged as a white knight and thwarted the collapse of a vast retail group that would have otherwise been dragged through India’s bankruptcy court.

The folding up of a group that showed to the world the potential of India’s retail market would have cast a long shadow on how the world perceives this crucial service sector growth engine of the economy and re-rate its prospects down. It would have also been read as an example of India’s diminishing potential as a marketplace.

The takeover now by Reliance Retail, will essentially give a fresh lease of life to what is an absorbing Indian entrepreneurial story. The deal is good news for lenders of Future Group who will now have secured outstanding loans protected as well as the retail ecosystem comprising small businesses and suppliers. Employees who would have otherwise stared at salary cuts and job losses now could get absorbed because Reliance Retail is aggressively expanding across India.

“The buyout of the logistics and warehousing segments of Future Group will help Reliance Retail take on Amazon which has been traditionally strong in these segments. Post this deal, Reliance Retail will now sell a wider range of products under one roof and domestic retail players who focus on specific segments will stand to get marginalised," said market veteran SP Tulsian.

Oil-to-telecom conglomerate Reliance Industries has been diversifying its business and shoring up its retail presence ahead of a big-bang listing. Amid the coronavirus pandemic, it pushed the grocery business heavily and also launched JioMart, rivalling the likes of Amazon and Walmart backed Flipkart. Recently, it also made a foray into online pharmacy and acquired a majority stake in Netmeds for Rs 620 crore. Reliance Retail’s business footprint spans across 11,806 retail stores in over 7,000 towns with 28.7 million sq ft of retail space.

Khaitan & Co and Shardul Amarchand Mangaldas advised Reliance Retail Ventures Ltd on the transaction, both law firms said in separate releases. JM Financial acted as an advisor to the entire Future Group and promoters on the transaction. ICICI Securities is the sole advisor to this transaction and has also issued fairness opinions on the share swap ratios in relation to the proposed amalgamation.
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