What went wrong between Future group, Amazon and Reliance deal?
The legal war that started between Amazon and it’s Indian partner, Future is getting uglier by the second. I am intrigued as to why a company like Amazon would go to the lengths it is going just in order to get back at a rival whose market value is 1 % it’s own. The argument is going on in New Delhi courtrooms and I am anticipating what the next outcome would be. Let’s see why this started in the first place.
A deal was supposed to happen between the multi-billionaire company led by Bezos and the Mumbai-based Future group, whose retail assets billionaire Mukesh Ambani’s Industries agreed to buy for $3.4 billion in August. According to Amazon, Future violated a partnership contract with the asset sale to its rival and wants to skip past it, while the Indian group has a different version. They say that they will collapse if this transaction fails. As Amazon has such leverage over the market, I feel that it is a bit difficult to believe that they care so much about this deal. On the other hand, since they care this much about this deal, there must be something bigger at play here.
This is supposed to be India’s biggest retail acquisition. Since the Future Group’s founder Kishore Biyani is said to have flouted an interim order from a Singapore court that halted the asset sale. Amazon has asked an Indian court to jail Biyani. I think such drastic measures are uncalled for and this should not hurt a business deal by which India might benefit.
The feud started when Amazon accused it’s partner, the Future Group by saying that they breached terms of a mutual agreement by announcing an asset sale deal with Reliance. Reliance is the conglomerate helmed by Asia’s richest man. These terms are still unclear and hence, it is difficult to make an opinion about them.
Amazon was actually supposed to cut a deal with the future group to increase its stake in the company. This did not materialise because of the lockdown imposed in India due to the coronavirus outbreak. At the same time, Future cut a deal with Reliance who wanted to buy it’s assets. This is clearly which has upset Amazon very much. I do think it is uncharacteristic for a multi-billion dollar company to be petty about it. Again, the terms and conditions which were violated are not clear and hence, we cannot draw any conclusions.
The fight is essentially for the dominance of India’s estimated $1 trillion consumer retail market. Future Group is caught in the middle of this tussle between companies helmed by two of the world’s richest men.
Reliance is already the country’s biggest brick-and-mortar retailer. Acquiring Future’s retail, wholesale, logistics and warehousing units would almost double its footprint and give it unparalleled edge over rivals -- an advantage Amazon is not willing to cede. Having a monopoly on the market is obviously what keeps Amazon going. I believe that having the remote possibility of someone taking away it’s spotlight is bothering them.
After having gone to courts in Singapore and India, Reliance said that they were not going to delay buying Future’s assets, while Future group was reluctant. Amazon appealed to a local court for the enforcement of the arbitration, to detain Biyani and seize their assets if they don’t comply. It was granted to Amazon by a court in New Delhi. It sure does seem like there is a lot at play here.
Future’s lawyers say in the courtroom that the entity selling the assets was not part of the contract between Amazon and the unlisted group firm in which the US retailer acquired a stake. Amazon’s counsel argued that both the Future firms were controlled by the same owners.
Future Group’s lawyers have also argued that its existence hinges on the sale to Reliance, and an aborted deal would result in the loss of tens of thousands of jobs. They say the Indian retailer is being driven to bankruptcy by a global giant.
Future Retail and the group at large, are hanging by the thread awaiting a verdict. This is because their survival depends on it. The group defaulted on obligations in August 2020 and missed an interest payment on its dollar bond this January. Future Retail has posted losses for four straight quarters and its shares have plunged 76 per cent in the past year.
Amazon being such a huge company, with assets worth billions of dollars should not hold out on the Future Group. They really need this deal and it would also be a huge business deal in the Indian quarter. As we can see from precedent, legal battles are a huge expenditure of money, time and manpower. I hope they come to an agreement and the Future group can function properly as soon as possible.
