The Reliance and Future Group deal has been in the headlines since a few days now. The recent development which involved Amazon sending a legal notice has spiced it up even more. We are all obsessed with conflicts especially when three multinational corporations are involved. To get a better understanding of the on-going feud, we need to look at the previous developments and understand what actually led to the present-day situation.
Future Group, owned by Kishore Biyani, had been facing a crisis for a few years. They were in huge debt and the reason might have been the diverse and over-ambitious investments made by the company. The group started out with a unique idea that gained success and their retail stores like Pantaloons and Big Bazaar became common household names. The greed to expand business in diverse areas might have turned out to be a big mistake. The group was burdened under debts but still continued to invest and make useless purchases. As the debt accumulated over time, the only option left was to sell their retail chains and shut down useless businesses. At the same time, online platforms like Amazon and Flipkart had already established themselves in the Indian market as retail giants. This increased the threat to all retail businesses as people were switching to e-commerce quicker than ever. Biyani saw this as an opportunity to extend his business to online platforms as well and thus decided to launch 'Retail 3.0'. It was too late to enter as the market had already been saturated and was now under the control of corporations like Amazon and Flipkart. Things didn’t work out for the group as planned. As of March 31, 2019, the combined debt of the Future Group was valued at ₹1.2 trillion.
The only viable option left for Biyani was to sell off the entire group. Reliance Industries Limited (RIL), which is looking to increase its presence in the retail business, acquired the retail and wholesale business as well as the logistics and warehousing business from the Future Group for a lump-sum aggregate consideration of ₹247 billion in 2020. Soon after the announcement was made public, Amazon jumped in between and turned the tables around. It not only slapped a legal notice but also approached the Singapore International Arbitration Centre (SIAC) claiming that the Future Group had breached the contract according to which Amazon owns a 49% stake in the Future Coupons Pvt Ltd, the parent company which owns all the retail stores, and thus has the first rights to refuse or acquire an even larger stake in the Future Group (after 3 years and before 10 years). Amazon has requested the SIAC to halt the deal between RIL and the Future Group.
Arguments in defence of the deal state that pre-conditions that exist in the Amazon deal only come into effect after 2022, thus the allegations do not stand. Also, it is claimed that Future Coupons has nothing to do with the Ambani-Biyani deal, and hence, the legal notice doesn’t matter and won’t affect the deal for long. Well, we can’t really be sure of these points and thus have the avenue to make an opinion about the same.
The deal was still awaiting completion by the authorities but now it seems to be kinda blurry! We know how prominent Amazon and RIL are in the Indian markets. They have expanded their businesses and the results have been profitable too. This deal definitely plays a crucial role considering the fact that the Future Group has a huge consumer base which will now benefit the new owner. Reliance Industries is owned by the richest Indian, Mukesh Ambani, and the company is in good shape and thus was looking forward to taking over the Future Group. It has plans to enter the e-commerce business via Jiomart. This will expand their business empire in the world of e-retail which will be beneficial in the long run. As we know, Amazon is the boss of e-commerce and won’t enjoy this new entrant in their arena. Thus, going ahead and flashing a legal notice which further halts the deal seems like a smart move to hamper the growth of RIL. We have grown up reading about business rivalries but we also know that profit is the only thing that matters at the end of the day. At this point in time, Amazon should be considerate of the fact that expansion within the subcontinent won’t be an easy task if they make RIL their rivals. The kind of control and authority RIL enjoys within the Indian markets is massive and thus the support will be of much help for expanding businesses. Amazon has the option to negotiate outside the courts and find a solution that satisfies the two parties.
Whatever be the case, the Future Group has lost its shine and is now being juggled between two companies who only care about their profits and will prioritise their self-interests. Both Amazon and Reliance have been expanding their shares in the Indian markets. With or without the battle, both corporations are winning in a way that benefits them exclusively. The kind of power and authority they have is unbeatable so this case won’t really matter to them. For us, however, it is going to be an interesting battle to look forward to!
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