We must do a better job of shuffling weak assets
PremiumSnappy business takeovers guard against value erosion but remain much too rare in India. The case of Future, a retailer that Amazon and Reliance vied for, must act as a wake-up call
Two takeover bids in different halves of the world stand out as a study in contrast. In the US, Elon Musk appears ready to snap up Twitter at a market premium. Though the deal deserves scrutiny, the target may see a revival in its fortunes after being taken over. In India, a tussle over retail assets of the Future Group has undergone numerous twists and turns through courts and commissions, and now our pioneer of big-format retailing seems headed for the wringer of bankruptcy with bleak prospects. What explains this? As the operator of Big Bazaar supermarkets, Future was battered by threats like e-commerce even before covid, but Amazon could not mount a direct rescue because foreign control of multi-brand retailers was barred by policy. Its indirect buy-in of 2019 was through a multi-layered deal, the very complexity of which threw it into jeopardy after Reliance offered almost ₹25,000 crore for a full buyout, a juicy offer that Future perhaps could not refuse. Spurned, Amazon sued for breach of contract, claiming a veto on such a sellout, even as its pact came under a lens for an alleged ulterior motive. Last week, more than two years on, the business in contention slipped away from either rescuer’s grasp.
Last Thursday, armed with the requisite clout, Future’s unpaid but secured creditors elected to reject Reliance’s proposal, a rejection that’s now set to push group defaulters into insolvency. On Saturday, Reliance, which had reportedly slashed the cash on offer for lenders, declared its withdrawal from the fray. As for Amazon, it stands to find itself shut out entirely should India’s bankruptcy code kick in, as it’s likely to be excluded from making a resolution bid on account of being both a foreign firm and a ‘related party’ (given its 2019 stake in a group holding firm). This week, Amazon said it will not give up its arbitration case against Future in Singapore, though it’s unclear what a win there can achieve for it if Future’s commitments gets wiped clean. What can be salvaged of Future Retail and its associated firms is even hazier, now that the group’s brands have visibly faded in appeal and lease-payment defaults have lost it the bulk of its outlet reach. Since Future’s stores had been pinned on the map to optimize market coverage, its well-curated network was seen as a prized catch. Over February and March, however, Reliance reportedly took over nearly 950 of them through local realty deals struck with their lessors. With most of Future’s customer catchment zone under its belt, there may have been little left for it to pursue.
While Future shareholders must feel let down by this turn of events, the saga shows why conflict resolution needs to be easier for India to resolve cases of insolvency. It also reveals the glaring cost of over-wrought rules. Policy-level clarity on whether it’s okay for people to shop for groceries at foreign-owned stores would’ve allowed not just an open contest of bids, but also a snappy takeover by the better suitor, assuring the retailer a fair chance of recovery. Buyouts, after all, are meant to enhance value as buyers make a fresh go of businesses, but value erosion gets likelier the longer it takes, while complex rules stretch timelines by posing legal riddles. In Future’s case, our regulator of rivalry actually revoked its approval of the Amazon pact in retrospect; so grey was the call. Reforms are a must, clearly, if we want a truly dynamic market for assets, one that shuffles them efficiently into the hands that can best make them sweat to generate returns, jobs and wider prosperity.