How Ambani outfoxed Amazon in a $3.4 billion deal dispute

Add Amazon.com Inc. to the list of companies that have been outmaneuvered by Mukesh Ambani’s juggernaut. Not only has he jolted the US giant in the fight to dominate India’s retail sector, he now holds all the cards in a $3.4 billion dogfight to buy a local cash-strapped retailer.

Ambani’s Reliance Industries Ltd. in late-February quietly began poaching employees and taking over rental leases of hundreds of stores once run by Future Retail Ltd. and Future Lifestyle Fashions Ltd., even as Amazon furiously tried to block formal acquisitions through lawsuits and arbitration across India and Singapore. Ambani’s bloodless coup forced Amazon to seek settlement on the bitter dispute and alarmed Future’s investors and lenders wary of asset-stripping.

“We did not expect Reliance Group to take such drastic actions, without even discussing the matter with us,” Future Retail’s Chief Financial Officer Chandra Prakash Toshniwal wrote in a March 2 letter to Reliance’s retail units. “Please confirm that there will not be any reduction in consideration payable.”

Another letter, dated March 5 -- Bloomberg has copies of both the letters -- sent by Future Lifestyle expressed “concerns and shock” and requested Reliance not to undertake such actions that “may be viewed seriously by the Lenders, who have charge on all current and fixed assets” of the company. Banks may cut off Future’s credit lines, crippling what’s left of an already cash-starved retailer, the letter said.

The Kishore Biyani-led Future Group got caught in the tussle between two large corporations after Amazon objected to Reliance’s August 2020 offer to buy Future Retail’s stores and warehouses for 247.1 billion rupees ($3.4 billion). The American e-commerce giant said the deal violated its 2019 agreement with another Future Group firm as it bled out Future Retail, which has missed debt obligations and faces bankruptcy risk. 

Future Group ran India’s biggest retail grocery chain before the pandemic struck, making it a juicy target for two of the world’s richest men -- Ambani and Amazon’s Jeff Bezos -- as they jostle for control of the only billion-plus consumer market where foreign firms can compete.

Representatives for Reliance, Amazon and the Future Group didn’t immediately respond to an emailed query seeking comments on the letters. 

The fate of Future Group investors, including Blackstone Inc. and L Catterton, and lenders now hang in balance as Reliance, Future and Amazon hammer out an out-of-court settlement by March 15, when they need to report progress to India’s Supreme Court. 

Reliance’s tactical win offers it the “master key,” giving it the strongest position at the negotiation table, according to Nirmal Gangwal, Mumbai-based founder of financial advisory firm Brescon & Allied Partners LLP.

Amazon is the latest player to witness how the Reliance conglomerate muscles in and eventually dominates nearly every sector it gets into -- petrochemicals, crude oil refining, consumer retail, telecom, digital services and, more recently, green energy.

Tacit Takeover

Last week, Amazon sought to bury a nearly two-year-old legal spat, five days after local media reported Reliance’s tacit takeover of about 200 stores by signing new lease agreements with landlords owning Future’s stores and sending job offers to 30,000 workers from the Future Group.  

Amazon’s disbelief at the turn of events came through during court hearing last week. The American e-tailer’s lawyer Gopal Subramanium said Future Group told them the deal with Reliance will take six months or more to close. “It has hardly been 48 hours and people are taking over shops,” he said.

But the drawn-out litigation hurt Future Group the most. The two Future firms owe 300 billion rupees in total debt, on the back of dwindling cash flows and operations.

Reliance will honor the definitive agreement they signed in the past, a person close to the development said, who did not want to be identified as the matter is private. It has also extended the period for closing the transaction by six months to Sept. 30. 

Treading Carefully

Another person familiar with the developments said Future Group was treading carefully as it doesn’t want to unsettle Reliance right now.

That tone of measured caution, bordering on desperation, comes through in the letters sent by Future firms.

“We have always acted with full transparency and have considered Reliance Group as a partner,” Future Retail said in the letter, adding that it was hopeful of closing the transaction soon. “We would, therefore, request that you do not take any actions against us.”