Future group, Amazon to initiate arbitration proceedings over RIL deal

Amazon says the deal violates the no-compete contract signed with the Future group and the RIL-Future deal will derail its plans to buy a stake in Future Retail Ltd

Global retail giant Amazon and Future Group are planning to initiate arbitration proceedings following a dispute over the latter’s sale of its retail and wholesale businesses to Reliance Industries Ltd (RIL).

This decision, according to Amazon, has breached its non-compete agreement with Future Group, apart from the right of first refusal the US ecommerce giant has to Future Retail shares.

A Future Group source said the arbitration could be initiated in Singapore and a mediator would be appointed to resolve the issues.

Amazon had picked up 49 per cent in Future Coupons in December last year for Rs 1,430 crore. Future Coupons, in turn, held around 7.2 per cent in Future Retail, which reported sales of Rs 20,118 crore in FY20 with Rs 34 crore of net profit.

A source said when it bought stake in Future Coupons, Amazon was given an additional option to buy direct stake in Future Retail after three years (by 2022) if the government of India permitted foreign direct investment (FDI) in multi-brand retail.

Amazon had 10 years (till 2029) to buy stake in Future Retail, the flagship company in Future Group.

Future Group, however, went ahead with the RIL deal within weeks of getting Amazon on board as investor in Future Coupons because it was facing a tough financial situation due to high debt at promoter-owned entities and sagging cash flows in the listed entities due to the pandemic.

Future promoter Kishore Biyani dialled RIL for a transaction and a deal was signed by the end of August.

Amazon’s objection, apart from its peeve that the deal is supposedly breaching its no-compete contract with Future Group, is that the agreement will derail its plan to buy stake in Future Retail.

Corporate lawyers said Amazon had the option to raise the issue at the National Company Law Tribunal (NCLT), where the merger applications will be made by Future Group companies.

According to the deal announced by Future Group and RIL, all listed Future Group entities would first merge into Future Enterprises and later the merged entity will sell its businesses to RIL.

“The option before Amazon is to move the NCLT in India and at the same time start arbitration overseas. This may delay the RIL-Future deal but may not stall it,” said a lawyer.

“There will be a lot of negotiation because Amazon is in talks to buy stake in Reliance Retail,” said a source.

An ecommerce industry executive with knowledge of the Amazon deal said: “When RIL and Future Group entered into the deal, Amazon was not informed about it. For the past few months, Amazon has been making attempts to reach Future Group but none of its officials was picking up the call.”

“So Amazon was left with no other choice but to serve them legal notice,” the person said.

Corporate lawyers said RIL had de-risked its strategy by taking legal opinion on how to acquire Future Group assets (and not the companies). Shardul Amarchand Mangaldas & Co advised RIL.

The acquisition is subject to approval by the Securities and Exchange Board of India, the Competition Commission of India, the NCLT, shareholders, creditors, etc.

Amazon did not reply to queries sent on Wednesday related to this. But a source said it had given at least a month to Future Group to respond to the legal notice.

An industry executive said: “It is tough to raise money in India and this matter would discourage investors to put in funds here.”

The industry source said Future Group entering into a deal with RIL and not keeping Amazon in the loop was a classic case of corporate governance lapse.

Biyani’s strategy, the source said, was to create businesses, get valuations for each one of them separately, and sell them. Compared to other businesses, the vertical doing well was retail.

Some industry executives also said the Future-Reliance deal would result in a lot of job losses as it would be a challenge for Reliance to even absorb 50 per cent of the employees of Future.