American e-commerce giant Amazon has managed to get a temporary stopper on Reliance’s USD 3.3 billion acquisition of India’s retail giant Future Group.
The Singapore International Arbitration Centre (SIAC) has passed an interim order asking Future Group to hold its plans of selling its retail business to Reliance Group till the final judgment is delivered on Amazon’s plea, Reuters reported late Sunday. SIAC is a non-profit organization that offers an alternative dispute resolution process arising from cross-border transactions.
The Seattle, Washington-headquartered firm had filed a complaint against Future Group earlier this month for breach of contract under which it had bought a stake in the latter’s subsidiary mid last year.
Reuters said Amazon has received an emergency order to halt the companies from proceeding with the deal until an arbitration tribunal is formed.
“It’s a comprehensive victory for Amazon,” a source told Reuters. “They’ve won an injunction to stop the deal.”
Future Group is likely to move Delhi High Court in the next few days towards challenging the interim order, according to a report by local media Economic Times. SIAC’s order would need to be ratified by an Indian court in order to be enforced, the report said, citing a source aware of the development.
The backstory
Last year, Amazon spent INR 15 billion to buy a 49% stake in Future Coupons, which owns a 7.3% stake in Future Retail. The deal reportedly gave Amazon an indirect control of over 5% in Future Retail, which operates food and grocery chain of stores such as Big Bazaar and Easyday.
Earlier in August, Reliance’s retail arm Reliance Retail had agreed to buy Future Group’s retail, wholesale, as well as logistics and warehousing business for INR 247 billion (USD 3.3 billion). Moreover, Reliance ensured that Amazon stayed out of Reliance Retail post the deal and that Future Group doesn’t enter the retail business for 15 years. The complex deal that involved the merger of Future Group’s five listed entities, including Future Retail, into Future Enterprises (FEL), from which Reliance acquired the grocery and apparel assets.
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However, Amazon claimed the proposed deal between Future Retail and RIL violated the contract it had signed with the Future Group. Citing the contract, Amazon claims it has the first right of refusal to buy the stakes of Future Group’s founder and CEO Kishore Biyani in Future Retail between three and 10 years of signing the deal. Furthermore, without its consent, Future Group was restricted to sell or transfer its assets to a third party in that time period.
Meanwhile, Future Group has maintained that it has sold its retail, warehousing, and logistic assets and not the stake in Future Retail, and thus has not violated any terms of the contract. In a statement on Monday, Future Retail said that “it is not a party to the agreement under which Amazon has invoked arbitration proceedings.”
Amazon’s move may jeopardize Reliance’s plans of building an omnichannel retail empire in the country. Mukesh Ambani, the chairman and managing director of Reliance has been raising money after announcing the acquisition of Future Group’s retail business.
Reliance’s gambit
The Future deal would increase Reliance’s footprint of about 800 departmental grocery stores by 34% to about 1,100 such stores. Similarly, Future’s apparel business, which has over 350 stores would add 15% to Reliance Retail’s total 2,400 stores, according to a note by brokerage firm Motilal Oswal.
Ambani’s grand plan involves creating the largest physical network of grocery, apparel, electronics, and lifestyle stores in India, and creating an e-commerce business to leverage that vast infrastructure through its recently launched platform JioMart. On top of that, he wants to convert 400 million subscribers of Reliance’s digital arm Jio Platforms into online shoppers for JioMart.
SIAC has given Amazon a week’s time to submit a proposal outlining its plans for Future Retail in case the outcome is in its favor, the ET report said. The interim order is valid for 90 days, within which SIAC will issue its final verdict.
“RRVL (Reliance Retail Ventures Limited) has entered into the transaction for the acquisition of assets and business of Future Retail Limited under proper legal advice and the rights and obligations are fully enforceable under Indian Law,” Reliance said in a statement. “RRVL intends to enforce its rights and complete the transaction in terms of the scheme and agreement with Future group without any delay.”
Future Retail also said the order from SIAC “will have to be tested under the provisions of Indian Arbitration Act in an appropriate forum,” and that if the order is enforced, it “would take appropriate steps to ensure that the proposed transaction will proceed unhindered without any delay.”