Amazon scored a major win on Friday after the Supreme Court ruled in its favour. Amazon, which bought a 49 percent stake in Future Retail’s promoter firm Future Coupons in 2019, objected to the Rs 24,713-crore Future Retail-Reliance Retail deal and moved Singapore International Arbitration Centre in October 2020. This was the first major hurdle to the deal, with the Emergency Arbitrator ruling in favour of Amazon, thus putting an interim stop to the deal.

What followed was a 10-month long legal battle in the Delhi HC and subsequently the SC. Amazon’s contention was that Kishore Biyani’s Future Group selling its retail assets to Reliance was a violation of its deal with Amazon. As part of the 2019 deal, Amazon barred Future from selling or disposing of assets to a list of 15 companies, which also included Mukesh Ambani’s Reliance Industries.

FRL’s contention has been that the deal was between Amazon and Future Coupons and that it wasn’t party to the deal, and that the EA’s interim ruling is not enforceable in India. Through the hearings at SIAC, Delhi HC and SC, it argued that the deb-ridden company had no choice after being majorly hit by the pandemic, and even alleged that it approached Amazon, but didn’t receive any help, and so Biyani had to sell off the retail business to Reliance. This claim was refuted by Amazon, which claims it did offer to help find investors.

Also Read: A timeline of how events unfolded

Amazon cannot directly invest in Future Retail due to the country’s FDI norms. So, it invested in Future Coupons, which offers value-added payment products like gift cards, loyalty cards, and reward cards. The deal came with a call option that allowed it to buy partial or controlling stake in FRL starting three years from the deal, up to 10 years, subject to prevalent FDI norms at the time.

In a major blow to FRL, SC upheld that the EA’s order is enforceable, thus restraining the deal. It’s important to note that the deal had received a nod from CCI, SEBI and the stock markets even as the legal battle raged on.

So what happens now? The EA’s order was only an interim award. A final bench was constituted earlier this year, which heard the final matter in July. A final judgement is now awaited.

Future Retail, in a statement, said that it has been advised that it has remedies available in law, which it will exercise. It said that the SC judgement addresses two limited points related to the enforceability of the Emergency Arbitrator’s order and not the merits of the disputes. It added that it intends to pursue all available avenues to conclude the deal to protect the interests of its stakeholders and workforce.

The deal is crucial for Biyani’s retail business, which has not only been impacted massively by the pandemic, but also saw the value of its listed businesses majorly eroding. The Reliance deal was significant because the company was not only going to buy the retail assets, which includes Big Bazaar, FBB, etc, but also the company’s liabilities.

FRL has said repeatedly through the hearings that should the deal fall through, it will go into liquidation and have a massive impact of the company’s 29,000 employees and thousands of vendors that have dues pending from the company.

On the other hand, lenders of Future Group’s companies (FRL, Future Enterprises, Future Lifestyle) have already implemented a restructuring plan for loans of these companies under the RBI’s circular for the Resolution Framework for COVID-19-related stress dated August 6, 2020. This scheme has also received a nod from the KV Kamath Committee in April as a back-up plan, should the deal fail.

Future Retail is reportedly expected to file a review petition against the verdict. But legal experts have said that this may not hold much weight. A resolution to the long-drawn dispute is essential to salvage any value in the retail giant. The company going into IBC will also not yield any value and could see bankers taking a massive haircut, larger than they would have anticipated.

Amazon, on the other hand, has welcomed the judgement and hopes this will hasten a resolution of the dispute with Future Group. For Amazon, this fight is more about not letting Reliance Industries get ahead in the retail game. Acquiring Future Retail would make Reliance Retail the largest retail player in the country with a big lead.

All eyes are now on the Emergency Arbitrator’s final ruling that will decide the fate of Biyani’s business and shape the retail landscape of the country.

Adani Wilmar’s IPO

The week also saw Adani Wilmar file for a Rs 4,500-crore IPO, which will entirely be a fresh issue. The FMCG major, which sells the oil brand ‘Fortune’, will become the 7th Adani Group company to be listed on the bourses.

The company intends to use the proceeds of the IPO to expand its food manufacturing capacity, repayment of borrowing and for strategic investments and acquisitions.

However, with 82.2 percent of the company’s revenues coming from the edible oil business, any impact on that industry could have a significant bearing for Adani Wilmar. The company flagged in its DRHP that its Products are in the nature of commodities, prices of which are subject to fluctuations that may affect profitability. In fact, while commodity prices being at an all-time high led to its revenue increasing by 25 percent in FY21, volume growth was only 3-4 percent YoY. should commodity prices fall from current levels, then absolute revenue will fall, while EBITDA margins may increase, it said.

The company has said that it intends to expand its presence in the Ready-to-Cook (RTC) & Ready-to-Eat (RTE) segments and this could be through acquisitions or business partnerships. This is interesting because these segments have seen massive growth through the pandemic on the back of work from home and convenience. A Technopak report commissioned by the company estimates the RTC & RTE segment will double from 2020 to Rs 8,900 crore by FY25. FMCG majors too have been expanding their presence in this market in huge way. ITC, which is among the largest players in RTC foods, ramped up the availability of frozen snacks to 30 different variants and 100 new markets on the back of increased demand. Many others like Jubilant FoodWorks, Amul, Veeba too, entered this market in 2020.

Adani Wilmar currently has a small presence with its Ready-to-Cook Kichidi product. It will be interesting to see how the company expands its presence here.

(Edited by : Aditi Gautam)

First Published:Aug 8, 2021 8:43 AM IST