Reliance Retail buys Future Group's businesses for ₹24,713 crore

"Reliance Retail Ventures Ltd (RRVL), subsidiary of Reliance Industries Ltd will acquire the retail and wholesale business and the logistics and warehousing business from the Future Group as going concerns on a slump sale basis for lumpsum aggregate consideration of INR 24,713 crore," the company said in a statement.

Reliance Retail will now have access to close to 1,800 stores across Future Group's Big Bazaar, FBB, Easyday, Central, Foodhall formats, which are spread in over 420 cities in India.

"Pleased to provide a home to the renowned formats and brands of Future Group," said Isha Ambani, Director, Reliance Retail.

"With this transaction, we are pleased to provide a home to the renowned formats and brands of Future Group as well as preserve its business ecosystem, which have played an important role in the evolution of modern retail in India. We hope to continue the growth momentum of the retail industry with our unique model of active collaboration with small merchants and kiranas as well as large consumer brands. We are committed to continue providing value to our consumers across the country," said Isha Ambani.

The above acquisition is being done as part of the scheme in which Future Group is merging certain companies carrying on the aforesaid businesses into Future Enterprises Limited (FEL).

The retail and wholesale undertaking of Future Group will be transferred to Reliance Retail and Fashion Lifestyle Limited (RRFLL), a wholly-owned subsidiary of RRVL.

The logistics and warehousing undertaking will be transferred to RRVL directly.

“As a result of this reorganisation and transaction, Future Group will achieve a holistic solution to the challenges that have been caused by Covid and the macro economic environment. This transaction takes into account the interest of all its stakeholders including lenders, shareholders, creditors, suppliers and employees giving continuity to all its businesses", said Kishore Biyani, Group CEO, Future Group.

RRFLL has also proposed to invest ₹1,200 crore in the preferential issue of equity shares of FEL to acquire 6.09 % of post-merger equity holding; and ₹400 crore in a preferential issue of equity warrants which, upon conversion and payment of balance 75% of the issue price, will result in RRFLL acquiring further 7.05% of FEL.

After this transaction, FEL, however, will retain the manufacturing and distribution of FMCG goods and integrated fashion sourcing and manufacturing business and its insurance JVs with Generali and JVs with NTC Mills.

The deal terms entail a merger of five listed units of Future Group across grocery, apparel, supply chain and the consumer business into Future Enterprises Ltd (FEL), which currently manages the group’s retail back-end infrastructure.

“We are pleased that our strong retail franchise and brands, that we have created over time, are going in stronger hands and will continue to grow and delight Indian shoppers", added Biyani

Post this exercise, Future Group said FEL will emerge strong with businesses in manufacturing and distribution of FMCG products and integrated fashion sourcing and merchandising.

“These businesses will further benefit from supply agreement with RRFLL. This deal will also enable FEL to focus on the creation of newage brands in the FMCG and fashion space and expand its reach.The transaction will help FEL to expand with a focussed business model and a stronger balance sheet," said the Future Group release.

Apart from the group-level debts, banks have an exposure of another ₹11,970 crore to the promoter entities of the Future Group.

The lenders of the group have demanded an access to Future Group’s real estate portfolio, which will be hived off into a separate company, Mint reported.

Reliance has also asked Future Group’s vendors to take a haircut of around 40% on their past dues. Some of the top Indian FMCG companies, including ITC and HUL, are suppliers to Future Group’s retail stores.

The latest deal was expected to be closed this month since many of Future Group’s lenders wanted the group to resolve the debt issues before the moratorium ends on 31 August.

The transaction with the Future Group will bolster Reliance Retail -- already the nation’s largest retailer by the number of stores -- in a sector that’s estimated to be worth $1.3 trillion by 2025 from $700 billion in 2019, according to a February study by Boston Consulting Group and Retailers’ Association India. The deal will also help the indebted Future Group pare its borrowings.

After disrupting India’s telecom sector, Ambani is now pushing ahead with his ambitions in the brick-and-mortar retail and e-commerce space. Asia’s wealthiest man is on a mission to transform his conglomerate into a consumer-services giant and reduce dependence on revenue from its traditional businesses of petrochemicals and oil refining.

Reliance Industries’ deal with the Future Group also draws the battle lines between Ambani and Amazon.com Inc. as well as Walmart Inc., which have spent billions of dollars in a bid to dominate the world’s only billion-people-plus market that’s still open to foreign firms.

The decks for the long pending deal were cleared earlier this week when Future Retail has paid $14 million (around ₹103 crore) as interest on its USD notes, according to a regulatory filing. The company has paid the interest amount of $14 million due on the 5.6% senior secured notes due 2025 (USD notes) after a grace period of 30 days, Future Retail said in the filing on Monday. The company on July 22 had informed the exchanges that it had missed the payment of interest on the USD notes on account of liquidity crunch.

Shardul Amarchand Mangaldas & Co has advised Reliance Retail Ventures Limited in the deal.