Ambani's Reliance buys stake in Future Group for Rs 24,713 cr

New Delhi, Aug 29: Billionaire Mukesh Ambani's Reliance Industries Ltd on Saturday announced the acquisition of Future Group businesses for Rs 24,713 cr to add to its fast expanding retail business and bolster e-commerce to take on the competition from Amazon.com.

"Reliance Retail Ventures Ltd (RRVL), subsidiary of Reliance Industries Ltd will acquire the retail and wholesale business and the logistics and warehousing business from the Future Group as going concerns on a slump sale basis for lumpsum aggregate consideration of INR 24,713 crore," the company said in a statement.

Through the deal, Reliance will acquire Future Retail that owns the Big Bazaar that sells everything from groceries to cosmetics and apparel, and Future Lifestyle Fashions Ltd that operates fashion discount chain Brand Factory. While Reliance will take over Future Consumer Ltd, which sells food, home and personal care products, Future Group's financial and insurance business is not part of the deal. The oil-to-chemical conglomerate's retail venture is India's largest offline retail company.

Despite its recent online rollout, the company is keen to expand its offline presence. Future is a good fit in Reliance's retail that helps it expand its offline retail presence and would see further improvement in margins due to improving scale. While Ambani's firm has bought out all of the promoter stake in Future Retail and Future Lifestyle Fashions - the two firms that hold the Future Group business, it was not immediately clear what happens to Amazon's holding in the Future.

In August last year, Seattle-based Amazon took an indirect stake of 1.3 per cent in Future Retail as a result of purchasing 49 per cent of Future Coupons Ltd. This investment allows it to buy into Future Retail after a period of between 3 and 10 years. That partnership was deepened in January when Amazon became the authorised online sales channel for Future Retail's stores.

Reliance may also have to make an open offer to acquire 26 per cent shareholding from minority shareholders of Future Enterprises Ltd post the deal. The acquisition has been done as part of the Scheme in which Future Group is merging certain companies carrying on the aforesaid businesses into Future Enterprises Limited (FEL), RIL said in a statement. While, Kishore Biyani-led Future group in a separate filing confirmed the development and said as part of major reorganisation of its businesses, its key group companies including Future Retail, Future Lifestyle Fashions, Future Consumer, Future Supply Chains and Future Market Networks will merge into Future Enterprises Limited (FEL).

"Future Enterprises will subsequently sell by way of a slump sale the retail and wholesale business that includes key formats such as Big Bazaar, fbb, Foodhall, Easyday, Nilgiris, Central and Brand Factory to Reliance Retail and Fashion Lifestyle Limited (RRFLL), a wholly-owned subsidiary of Reliance Retail Ventures Limited (RRVL)," said Future Group in a statement.

It will also sell the logistics and warehouse business to RRVL by way of a slump sale. Retail contributes about a fourth of RIL's revenues. Ambani had at the company's annual general meeting stated that Reliance is looking to find a potential strategic partner for its retail business. It may look at an IPO of the company within 3-5 years. Future Retail operates 1,550 stores. Its flagship brands are BigBazaar, FBB and Foodhall, Easyday, Heritage Fresh and WHSmith. Future Lifestyle Fashion operates 354 stores.

Investment from Reliance, India's most valuable company, would help Future's founder Kishore Biyani pare debt. The deal may however risk Future's tie-up with the US online shopping giant Amazon. The Reliance-Future deal will intensify war in India's retail sector. Amazon has already pledged to invest USD 5.5 billion in the country, while Walmart bought local e-commerce giant Flipkart in 2018 for USD 16 billion. RRFLL and RRVL will take over certain borrowings and current liabilities related to the business and discharge the balance consideration by way of cash.

"After this transaction, FEL will retain the manufacturing and distribution of FMCG goods and integrated fashion sourcing and manufacturing business and its insurance JVs with Generali and JVs with NTC Mills," it said. While RIL also announced changes for the deal and said as part of the same Scheme Retail & Wholesale Undertaking is being transferred to Reliance Retail and Fashion Lifestyle Limited (RRFLL), a wholly-owned subsidiary of RRVL.

The logistics & warehousing undertaking is being transferred to RRVL. RRFLL will also invest Rs 1,200 crore in the preferential issue of equity shares of FEL to acquire 6.09 per cent of post-merger equity and Rs 400 crore in a preferential issue of equity warrants which, upon conversion and payment of balance 75 per cent of the issue price, will result in RRFLL acquiring further 7.05 per cent of FEL.

Commenting on the development, Reliance Retail Ventures Director Isha Ambani 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." RRVL is the holding company of Reliance Retail Limited which operates the retail business. Its revenue in 2019-20 stood at Rs 1,62,936 crore. Future Enterprises, which develops, owns and leases the retail infrastructure for the Group had a revenue of Rs 4,565.64 crore in 2018-19.