Let’s get started on a lighter note (as usual). If I could dedicate a song to Future Group at the moment, it would be “Chan se jo toote koi sapna… jag soona soona lage...” Now, I’ll tell you the reason why I chose a sad song for Future Group and why particularly this one. You would have surely heard almost a month (or two) ago that Reliance Industries Limited has cracked the biggest ever deal of the retail sector to acquire the assets of Future Retail, and we also sent an edition of Ticker Talks on this. But now, the tables have turned!
Reliance - Future Group deal has been interrupted by Amazon. And, not just interrupted, Amazon has put forth its dissent so strongly that it now really looks difficult for the deal to go through.
Arbitration recently happened in Singapore, where it has more or less gone in favour of Amazon. However, the decision of the arbitrator is not enforceable in India by law. So, the high-voltage drama is still going on. Read on to find out the details.
From where did Amazon come in?
The first question that would have struck your mind when you read the first bit of news about Amazon stepping in would be ‘From where did Amazon come into all this?’ It was a deal that was taking place between Reliance and Future Group, so how did Amazon come in? Well, Amazon’s stake in Future Coupons, which also translates into a stake in Future Retail is at the centre of this chaos.
So here’s the story. Amazon had earlier invested in Future Coupons and bought approximately 49 percent stake in it. This stake roughly translates into a 3.5 percent stake in Future Retail. While Amazon had bought a stake in Future Coupons, it had made Future Group agree on certain conditions.
One of the conditions was that there was a list of industrialists/businesses provided by Amazon and Future had to abide by not selling the stake to these listed entities without Amazon’s consent. And guess what? Mr. Mukesh Ambani’s name was on that list.
So now, Amazon has intervened in the deal with a “How can you do this to me?” attitude, and its point looks valid as well. But, what happened in Singapore stays in Singapore. The climax of the story would take place in India.
The Legal Front
Arbitration and Conciliation Act in India will play a deciding role in this situation, according to a reputed corporate lawyer who spoke to a media house in this regard. The problem is that even if the Singapore based arbitrator decides in favour of Amazon, the decision will not be enforceable in India by law.
Although both the parties involved will be expected to abide by the decision by themselves in India. But, since there would be no compulsion, the situation might complicate in India.
By the way, Amazon has also written to SEBI requesting to disapprove the deal. Another development in the matter is that BSE (Bombay Stock Exchange) has said that it will consult SEBI regarding the matter and then proceed.
Amazon also has the option of knocking on the doors of the top court, i.e. the Supreme Court of India if it feels like. And then, the Arbitration and Conciliation Act would come into play. Now, which way would the deal go, it’s difficult to predict. But, Amazon isn’t going to leave it ‘just like that’, that’s for sure.
RIL’s and Future Group’s Stand
While Amazon has created a roadblock for the iconic Reliance-Future Group deal, Reliance and Future Group are still positive about it. In fact, they are standing in solidarity with each other on this.
Both the parties have addressed the media separately and have said that they want this deal to go through and that they will do everything possible to make it happen. As a matter of fact, it is also being reported that negotiations have already begun with Amazon, although it would be a tough nut to crack.
Meanwhile, it’s in the news that Future Group has prepared a war chest worth 1000 crores. The thing is that even if Amazon succeeds in winning the legal battle completely, what it can claim at the most (expectedly) is monetary compensation.
Future Group is being said to be ready for this situation. It has been reported that Future Group has mentioned that it owns an escrow account with Rs. 1000 crores deposited in it. In fact, someone from the Future Group’s management has told the media that this fund could be raised up to 1500 crores if required.
Imagine you were about to do something very exciting, and you were joined by a friend with whom you could enjoy doing it even more. And then, suddenly someone splashed water on your face and stopped you from doing it! And you realized that all of it was nothing but a dream. How would you feel? Of course, a shattering dream doesn’t feel good at all. In fact, it feels disgusting. Maybe, Future Group would be feeling the same way right now.
Just when it had thought that an iconic deal with Reliance would end its woes, Amazon stepped in and gatecrashed its dream. It also needs to be mentioned that in the worst-case scenario, Future Retail would be liquidated. The climax is still pending and which way would the pendulum swing, only time will tell. It will be interesting to see as to who gets the most out of all this.