Amazon likely to face regulatory challenges to buy Catamaran JV

Amazon may face regulatory challenges in the acquisition of Prione Business Services Pvt. Ltd., the joint venture between Infosys co-founder N R Narayana Murthy’s Catamaran Ventures and the US-based e-commerce giant, according to legal experts.

Prione Business Services, which owns Cloudtail, one of the biggest retailers on Amazon’s platform, will be acquired by Amazon, subject to the requisite regulatory approvals, the company said in a statement on Wednesday. 

On August 09, 2021, the partners had announced their decision to not continue the JV beyond the end of its current term in May 2022. 

The businesses of the JV shall continue under the leadership of the current management and once the regulatory approvals come through, the board of Prione and Cloudtail (owned by Prione) will complete the transaction in compliance with the applicable laws. 

Industry sources said that Amazon has already approached the Competition Commission of India (CCI), seeking its approval for buying Catamaran’s stake in Prione. 

The Confederation of All India Traders (CAIT), which represents about 70 million traders in the country, said that if Amazon gets CCI’s approval, it will be a gross violation of the Foreign Direct Investment (FDI) policy, because Amazon will have complete control over a seller on its platform. “This will convert Amazon from being a marketplace platform to an inventory-based platform, which is strictly prohibited under the FDI policy,” CAIT said. 

CAIT president, B.C. Bhartia, and secretary general, Praveen Khandelwal, explained that Prione is a subsidiary of Amazon Asia Pacific Holdings (“Amazon Asia”), Singapore (24 per cent) and Cata­maran Ventures (76 per cent) and wholly owns Cloudtail India Private Limited, which is amongst the two largest sellers on the Amazon India marketplace. 

“The FDI policy is very clear. Amazon can’t sell on its own platform via its subsi­diary Cloudtail. What they do with it after the proposed acquisition is their own headache,” a government official said. 

“The ability of Cloudtail to continue as a seller on the Amazon platform will need to be revisited,” said Vivek Pareek, partner, Saraf and Partners, Law Offices. “The transaction would be subject to the nod from CCI, and given Amazon’s latest brush with the CCI, it will be an interesting review.”

This month the CCI suspended Amazon’s 2019 deal with Future Retail (FRL), citing the company’s alleged deliberate attempt to suppress information about the scope and purpose of the deal. The antitrust regulator has imposed a penalty of Rs 200 crore on Amazon to be paid within 60 days of receipt of the order.

The relationship between Murthy and Amazon founder Jeff Bezos goes back to 2014, when Prione, a 49:51 JV, was formed. In 2019, the JV was restructured after the government stipulated that foreign e-commerce marketplaces cannot sell the products of their group companies on their platforms. Following this, Catamaran Ventures increased its stake in Prione to 76 per cent, reducing Amazon Asia’s stake to 24 per cent. 

A major chunk of Prione’s revenues came from its ownership of Cloudtail, one of the biggest and most profitable retailers on Amazon. 
 

An industry expert said Amazon’s acquisition of Catamaran Ventures’ 76 per cent stake in Prione could be because Murthy wants to see himself out of the mess. “Amazon may be just giving Murthy a way out of Cloudtail. What it will do with Cloudtail is not very clear.”

“The deal would need regulatory approvals and could face hurdles from CCI,” said Salman Waris, managing partner at technology law firm TechLegis Advocates & Solicitors. “Amazon acquiring a full stake in Prione would have a significant impact on its business as it would enable Amazon to retain its biggest asset in the e-commerce market battle and ensure no adverse consequences for the business.”

Other legal experts such as Vaibhav Choukse, partner, JSA, is of the view that from CCI’s standpoint, the deal is reportable as there is a change in the control of Prione — from joint to sole control. “Transactions of such a nature are quickly approved by the CCI as they generally do not pose any competition concern. This is likely to be an easy approval for Amazon,” said Choukse.

An Amazon spokesperson on Thurs­day said Prione and Cloudtail business will continue till receipt of regulatory approvals. “On receipt of regulatory approvals, the board of Prione and Cloudtail will take steps to ensure compliance with applicable laws to enable Amazon to complete the acquisition of Catamaran’s shares in Prione,” said the Amazon spokesperson. 

Would Cloudtail continue to be a seller on Amazon.in? “Business of Prione and Cloudtail will continue as usual, till receipt of all regulatory approvals,” said Amazon spokesperson. 

The Amazon spokesperson said Catamaran and Amazon have a high compliance bar and we conduct all business activities in compliance with applicable laws. “We will ensure that the transaction is in compliance with all applicable laws,” said the spokesperson.