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Amazon May Close Future Retail Deal Next Week With 9.5% Stake

Amazon May Close Future Retail Deal Next Week With 9.5% Stake

The board approval is expected to come on November 14

Amazon and Future Retail have reportedly signed term sheets

Earlier Amazon has bought stakes in Shoppers Stop and Aditya Birla Retail ‘More’ through FPI route

With an active pursuit of making a bigger mark in Indian retail, global ecommerce company Amazon looks closer to buying 9.5% stake in Kishore Biyani’s Future Retail in a deal nearly worth $342.86 Mn (INR 2,500 Cr). The deal, which is expected to be announced next week after the approval from the board on November 14, will be done via foreign portfolio investor (FPI) route.

A media report cited people aware of the matter to claim that the companies have already signed the term sheet.

It is to be noted that India allows 51% overseas investment in multi-brand retail, but an FPI can acquire less than 10% in an Indian entity as a single firm while an Indian company can dilute up to 49% stake to multiple FPIs.

Earlier Amazon has bought stakes in Shoppers Stop and Aditya Birla Retail ‘More’ through the same route.

The Amazon-Future Retail saga first began in January when Kishore Biyani met Amazon founder Jeff Bezos in Seattle headquarters. Various meetings by company executives have taken place since then. Here’s a brief timeline:

  • February 2018: Future Group was eyeing a strategic alliance with Amazon
  • May 2018: Amazon was reportedly in talks with Future Retail Limited to acquire 10% stake, Walmart and Alibaba also eyeing to own stakes
  • June 2018: Azim Premji-led PremjiInvest acquired a 6% stake in Future Retail for $251 Mn (INR 1700 Cr) in a block deal
  • August 2018: Kishore Biyani disclosed his plans to close a deal with a foreign investor for Future Retail
  • August 2018: A consortium of search giant Google and the Alibaba-backed Paytm Mall was looking to picking up a 7-10% stake in Future Retail

According to Future retail’s annual report 2016-17, it has a customer base of 300 Mn expanding across 26 states, 240 cities and 901 stores. The company claimed to have clocked a total income of $2.5 Bn (INR 17,075 Cr), a profit after tax of $54 Mn (INR 368 Cr), and earnings per share of $1.1 Mn (INR 7.81) in 2016-17.

Amazon’s Food Retail Journey In India

In India, Amazon’s food retail plans began in July 2017 when the company received the final nod from the government for its proposed $500 Mn investment in food retail in India.

Initially, the reports surfaced that Amazon was planning to roll out its food retail venture around October 2017. But it was delayed as the company was said to be striving to keep this venture separate from its online marketplace, as mandated by the Indian government.

After months of delays, the company launched a pilot project in Pune in February 2018.

However, no further expansion took place as the company sought clarifications on the restrictions imposed by the Department of Industrial Policy and Promotion (DIPP). DIPP has asked the company to maintain separate equipment, machinery, and warehouses for its food and marketplace businesses.

Amazon is trying to understand if it can share some of its warehouse staff, entry and exit doors at warehouses, barcode machines, trolleys, etc between its businesses. Also, it has sought to understand if it can maintain the “segregation virtually”.

Even as the company has ventured into grocery segment with Amazon Prime Now or Pantry, the company still needs a boost for its expansion plans of food retail. On the revenue front, the company reported a loss of $862.26 Mn (INR 6287.2 Cr) for FY2017-18.

Also, with global rival Walmart’s foray in India with acquisition of ecommerce company Flipkart — which is also eyeing the online grocery market — Amazon is likely to give further push to its India initiatives.

After ecommerce, the next battleground for the global, as well as Indian, industry stalwarts has become the food retail/grocery segment. As the companies lock horns as well as shake hands to play together, the industry has got investor attention as well.

[The development was reported by ET.]