RIL will acquire retail, wholesale, logistics and warehousing units of Future Group for ₹24,713 crore. As a part of the deal, Future Group will first merge certain companies carrying on the aforesaid businesses into Future Enterprises Limited
MUMBAI: Shares of some Future Group companies hit upper circuit on Monday following news that Reliance Industries Ltd will buy certain units of the retail major.
Future Retail Ltd hit 20% upper circuit, Future Enterprises 5% upper circuit, Future Consumer and Future Lifestyle Fashions both hit 5%.
Shares of Reliance Industries Ltd gained 1.4% to ₹2,146.
RIL will acquire the retail, wholesale, logistics and warehousing units of Future Group for ₹24,713 crore. As a part of the acquisition, Future Group will first merge certain companies carrying on the aforesaid businesses into Future Enterprises Limited (FEL).
Reliance Retail and Fashion Lifestyle 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.
"This further strengthens Reliance Retail's leadership position in the grocery and fashion segments, adding ~30% to the existing revenue base for the core retail operations," said JP Morgan in a report.
"We see multiple strategic positives for Reliance here: scale and synergy benefits to add to topline/earnings growth trajectory, leveraging the supply chain and retail infrastructure for a faster scale up of the online JioMart platform/new commerce and access to good retail locations particularly in the Tier 1/Metro cities where Future had strong presence," the JP Morgan report added.
Brokerage firm Kotak Institutional Equities believes that the acquired businesses can potentially command a higher valuation multiple of 20-25X EBITDA as and when RIL is able to turn around its uninspiring performance and put it on a robust growth trajectory like its extant business.