Future perfect: Is Amazon-Future-RIL JV in the making?
Premium- Tripartite deal with Reliance among proposals under consideration
- Ahead of the proposed settlement talks, RIL took control of more than 250 stores of Future’s major Big Bazaar stores
MUMBAI : The bitter legal battle between Amazon.com and Future Group may take an unexpected twist, if the two parties can reach a broad consensus during talks to resolve the dispute.
On the table are proposals that include a tripartite joint venture with Reliance Industries Ltd, which proposed to buy troubled Future Group’s assets for ₹24,713 crore, two people aware of the settlement options said on condition of anonymity. However, any settlement between Amazon and Future may ultimately hinge on the decision of Future’s lenders to whom Kishore Biyani owes at least $3 billion, they said.
During the last hearing a week ago, the Supreme Court allowed Amazon and Future time till 15 March to negotiate an out-of-court settlement. The two estranged retail business partners will sit for settlement talks this week and inform the top court about the progress by 15 March, the two people said.
A quick negotiated settlement may be in the best interest of all parties, as the worsening financial condition of Future group may lead to further deterioration in the assets of the cash-strapped retailer. Amazon has legally blocked Reliance’s August 2020 plan to buy Future’s assets citing violation of its investment contracts with Future Group.
To be sure, the negotiations between Amazon and Future may not lead to a settlement.
The two people cited above said that the Supreme Court’s directive allowed Reliance to participate in the discussions as an interested party, and if both Amazon and Future agree to include RIL as a partner in their businesses rather than a rival, a three-way joint venture is one of the key options that could be considered.
Other options being considered include Amazon-backed funding of as much as $2 billion in Future Group, the people cited above said.
“The other scenarios that could be a part of the Amazon-Future discussions include an investment of around $2 billion by a clutch of new financial entities to be brought in by Amazon to bail out debt-laden Future group," one of the two people said.
If this option is agreed upon, it will help take care of the immediate needs for Future group in terms of repayment of loans and working capital. Earlier, Amazon’s repeated offers to bail out Future were spurned.
“Another scenario could be a failure of Amazon and Future to arrive at any settlement terms, which may lead to the continuation of the ongoing legal disputes at various judicial forums, which in turn may keep weakening Future’s business. This will make things messier for both Future and Amazon," the person said.
Emails sent to Amazon, RIL and Future did not elicit a response till press time.
A resolution of the long-running dispute has become increasingly critical for Future group, which has been finding it difficult to finance its working capital needs.
In a stock exchange filing on 26 February, Future Retail said it plans to scale down its offline operations to narrow losses and instead focus on expanding its online and home delivery business.
The company has made a loss of ₹4,445 crore in the last four quarters.
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Ahead of the proposed settlement talks, RIL took control of more than 250 stores of Future’s major Big Bazaar stores, leased out to Biyanis by RIL’s subsidiaries last year. This development may impact the valuation of Future in case Amazon brings in a fresh investment or capital infusion offer through Samara Capital or other potential institutional investors, said the first person.
Despite the deteriorating financials of Future, Reliance is unlikely to revise its original ₹24,713 crore valuation for the proposed acquisition because the date of deal closure has once again been mutually extended by six months till September 2022, said a third person close to Reliance.
In August 2019, Amazon acquired a 49% stake in Future Coupons Pvt. Ltd, which gave Amazon an indirect 3.8% in Future Retail Ltd. According to the contract, Future was barred from selling its retail assets to 30-odd entities, including Reliance, without Amazon’s prior consent.
But, in August 2020, FRL announced a sale of its assets to Reliance, which compelled Amazon to file an arbitration case against Future before a Singapore arbitral tribunal, which through an emergency order in October 2020, restrained Future from proceeding with the Reliance deal. This resulted in a series of appeals by Future and Amazon before the Delhi high court and the Supreme Court.
RIL's surprise takeover of Future's stores' premises, with pending Indian courts' verdict may not only lead to legal consequences but also be severely impact the lenders' ability to recover their dues.
If the upcoming mediation between Amazon and Future does not lead to any settlement and both Amazon and RIL eventually withdraw their interest to takeover Future, it may result in liquidation of Future so that at least the lenders are able to recover a part of their dues.
In such a scenario the fate of the Future may become so uncertain that the listed firms of Future Group may not only significantly lose their value on exchanges, eroding the wealth of the already-loss-making public investors of Future Group companies but also result in job losses for thousands of Future Group employees.
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