Reliance Industries scraps Future Retail deal. All you need to know

by 5paisa Research Team Last Updated: Dec 14, 2022 - 10:58 am 34k Views
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In an anti-climax of sorts to its long-drawn-out battle to acquire Kishore Biyani’s beleaguered retail chain Future Retail, billionaire Mukesh Ambani’s Reliance Industries Ltd has walked away from the Rs 24,713 crore deal that would have seen it take over nearly all of the former’s outlets across the country. 

Reliance said the deal cannot be implemented after secured creditors of the Biyani-led companies voted against the acquisition proposal. 

The scrapped deal has already claimed its first scalp, with Shailesh Haribhakti, an independent director of Future Lifestyle Fashions Ltd quitting, saying that the legal and financial situation around the company had become “volatile, complex and unpredictable” and that the board’s recommendations have not really been implemented. 

Haribhakti had chaired the meetings with the creditors, who had been called for a vote by the National Company Law Tribunal. 

The secured creditors did not, however, give the mandatory approval of at least 75%, rendering the deal ineffective. 

These meetings were opposed by the US e-commerce major Amazon, which, in 2019, had acquired a 49% stake in Future Coupons Pvt Ltd, a promoter company of Future Retail. 

What did Reliance actually say?

Reliance said in a regulatory filing that the secured creditors of Future Group companies, comprising Future Retail Ltd (FRL) and other listed companies involved in the scheme, have voted against the scheme. 

To which Reliance entities were the Future Group assets be transferred?

The Future Group assets, including those of its retail, wholesale, logistics and warehousing subsidiaries, were to be transferred to two Reliance entities—Reliance Retail Ventures Ltd and Reliance Retail and Fashion Lifestyle Ltd.

Who all were in favour of the deal?

Reliance said that Future Group shareholders as well as unsecured creditors voted in favour of the deal. 

Which are the listed Future Group entities that were a part of the deal that has now fallen through?

The Future Group listed entities include: Future Retail Ltd, Future Enterprises Ltd, Future Market Networks Ltd, Future Consumer Ltd, Future Supply Chain Solutions Ltd and Future Lifestyle Fashions Ltd. 

So, why is this an anti-climax?

This is an anti-climax since Reliance had begun the process of taking the assets of the Future Group over, and was looking all set to close the deal, after a 21-month battle with Amazon that went into arbitration and to the courts. 

In 2020, the debt-laden Future Group had decided to sell its retail, logistics and warehousing businesses to the Reliance group for just under Rs 25,000 crore. This deal had been negotiated under a resolution framework proposed by the Reserve Bank of India in 2019 to tackle India’s burgeoning bad loan mess. 

Following this, Amazon had initiated litigation in October 2020, which is still ongoing. 

But why was Amazon even opposed to the Future-Reliance deal?

Amazon has long argued that Future violated the terms of its 2019 deal in deciding to sell retail assets to Reliance. The US e-commerce giant has cited clauses in its 2019 investment agreement with the Future group to try and block the deal with Reliance, which is also Amazon’s rival in the online e-commerce market in India. 

But the Competition Commission of India suspended the 2019 deal last month, citing suppression of information by Amazon while seeking clearances. Thereafter, Future argued there was no legal basis for the arbitration between the two sides to continue in Singapore.

A two-judge bench led by Chief Justice D.N. Patel of the Delhi High Court agreed with Future's arguments, putting the arbitration proceedings on hold. If the proceedings are not halted, Justice Patel said this would cause an "irreparable loss" to Future. "We hereby stay further proceedings of arbitral tribunal till next date of hearing," said Patel. 

The long-running dispute was being heard by a Singapore arbitration panel, but the so-called "seat of the arbitration" is New Delhi, meaning proceedings are governed by Indian law.

So, has Reliance given up on its quest to acquire Future?

Not really. News reports say that the Ambani-led company is now planning to bid for Future Retail under the insolvency resolution process. The banks will now approach the NCLT for initiating proceedings under the Insolvency and Bankruptcy Code (IBC). 

Reliance wants to adjust an outstanding Rs 6,000 crore from Future for rent and other expenses like purchase of inventory and working capital expenses, a report in The Economic Times newspaper said. It may not, however, support any line of credit to the Future Group, and will factor in the erosion of values of Future Group’s assets, effectively meaning it will lower the prospective bid amount. 

But will Reliance still get something out of the collapsed deal?

Yes. A report in The Hindu Business Line newspaper says that despite calling off the deal with Future Retail, Reliance Industries still walks away with 947 small and large format store premium that were once occupied by Future Retail stores.

Citing unnamed sources, the report said that the lenders’ decision to vote against the deal with Future Retail will have no impact on the move to take over the lease of the stores, whose owners had terminated leases with Future. 

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