Future Retail’s stock was down 5.7 per cent on the BSE on Friday, closing trade at Rs 390 per share, a day after e-tailer Amazon picked up an indirect stake in the company. Intraday, the stock was down as much as 8 per cent as investors remained nervous about the deal, which will see Amazon pick up a 3.6 per cent stake in Future Retail via an investment in promoter entity Future Coupons.
While Future, sector experts said, would get a global partner in Amazon and the latter would get a toehold in offline retail — its third transaction in three years — investors seem to be unhappy with the small stake the American major has taken in the firm with a call option after three years.
Future Retail Managing Director Kishore Biyani was not immediately available for comment. But a retail and consumer analyst, who tracks the company, said: “The option that Amazon has to stay invested or walk out after three years is a concern. Amazon’s stake is also very small. I am not sure whether this is enough in an environment where competitive intensity in retail is growing with players such as Reliance Retail and Walmart-Flipkart in the fray.”
Future Coupons, according to disclosures to the stock exchange, had been issued warrants in Future Retail to the tune of Rs 2,000 crore earlier this year. Of this, it had invested Rs 500 crore, implying the balance Rs 1,500 crore that Future Coupons proposed to infuse in Future Retail was instead done by Amazon, Edelweiss analysts Alok Shah, Abneesh Roy, and Akash Damani said on Friday.
“Factoring this in, we arrive at an implied acquisition price of Rs 773 per share, a 53.2 per cent premium to the warrant conversion price of Rs 505,” the analysts said. “The Amazon pact will help Future Retail set up an omni-channel business, restructure the board to up corporate governance standards and reduce related-party transactions,” they said.
Percentage of promoter stake in Future Retail pledged to lenders has been steadily increasing in the past year, the data from Capitaline shows. It stood at nearly 52 per cent at the end of the June 2019 quarter, up from nearly 44 per cent a year ago. Promoter stake in Future Retail at the end of the June quarter stood at 47.02 per cent, marginally higher than the 46.52 per cent they held in the company a year ago.