Dealmaking in times of corona: Facebook-Jio sets new benchmark for remote negotiations

Setting a new benchmark in dealmaking, the USD 5.7 billion investment by Facebook in Reliance Industries' Jio Platforms saw a bulk of the active M&A dialogue, including for due diligence and agreement negotiations, happening remotely, bankers and advisors involved in the transaction said.

This is one of the biggest deals that has taken place when there is a nationwide lockdown in India while same is the case for most states in the US -- the two countries where the two parties of this deal are based.

The deal, which gives unlisted Jio Platforms an enterprise value of close to USD 66 billion, will help its listed parent firm Reliance Industries cut debt and also use Facebook's popular messaging platform WhatsApp as a front-end for creating an Indian e-commerce giant that could rival global giants like Amazon and Walmart.

While Bank of America was the exclusive financial advisor to Facebook for this transaction, Morgan Stanley advised Reliance Industries. AZB & Partners and Davis Polk & Wardwell acted as counsels for RIL, while Shardul Amarchand Mangaldas was legal advisor for Facebook.

Bankers involved in the deal said the active deal-specific dialogue had been going on for a few months before it became public, but broader discussion between Reliance Industries and Facebook was happening for much longer, which had started on talks for doing something together and then moved on towards getting to know each other and building the trust.

"For last two months, much of the discussion, a large part of due diligence, agreement negotiations, etc, all of that have happened remotely. Even some board meetings have happened remotely. Once the active M&A dialogue began, most of that has happened remotely," a top banker said.

Traditionally, deals of this magnitude, especially cross-border ones, involve extensive travel and physical visits to offices and facilities by top executives as well as financial and legal advisors from both sides for an all-round vetting, including of books of accounts and financial statements.

Another banker said the deal discussions from Facebook's side were mostly driven by the social media giant's finance and M&A teams, while legal teams were also involved actively.

The overall business leadership team of Facebook was mostly involved in discussions at the back-end with various top stakeholders of Reliance Industries group, the banker said.

Reliance Industries' Chairman and Managing Director Mukesh Ambani said Reliance Jio and Facebook will look to use WhatsApp for delivering goods from local neighbourhood kirana stores to consumers before expanding collaboration into education and healthcare sectors.

"The combined power of Jio's world-class digital connectivity platform and Facebook's intimate relationship with the Indian people will offer innovative new solutions to each one of you," Ambani said.

"In the very near future, JioMart -- Jio's digital new commerce platform, and WhatsApp will empower nearly three crore small Indian kirana shops to digitally transact with every customer in their neighbourhood," he said.

WhatsApp has over 400 million users in India while Jio has 388 million-plus phone subscribers. Facebook itself has about 250 million users in India.

The bankers said the deal gives an opportunity to Facebook to establish a broader partnership in India as the country is very important for the global giant and it sees a long growth horizon in Jio, both in terms of mobile and fixed broadband businesses.

During the discussions, Facebook was also impressed with the way 'Jio Homes' is connecting houses with fibre broadband and it has become even more important during the ongoing lockdown to have good fibre connection.

Besides, Facebook sees a great value in a suite of apps and OTT (over the top) platforms that Jio has created, the bankers said.

Facebook is also excited about a proposed collaboration between WhatsApp and Jio Mart, where it sees the messaging platform becoming a front-end technology partner for Jio Mart, among various other long-term growth opportunities.

WhatsApp users would be effectively able to shop what they want, using the backend of Jio Mart. Facebook itself is not in the business of setting up stores or warehouses or moving goods etc. The deal can see Facebook and WhatsApp customer in India getting connected to retailers across the country.

Another person involved in the deal said it does not put Facebook in direct competition with Amazon, Walmart or Flipkart, but Jio Mart is clearly competing with those e-commerce platforms.

He clarified Facebook itself is not creating a new app or platform, but WhatsApp itself is moving towards becoming a tool for e-commerce.

The bankers ruled out any immediate plans for Facebook increasing the stake from 9.99 per cent.