Goldman Sachs & Samara Capital plan to float a special purpose vehicle in which Amazon will pick up a 49% stake as a “strategic partner”
More has 493 branded supermarkets and 20 hypermarkets, covering more than 2 Mn sq ft of retail space, across India
Amazon took up a 5% stake in Shoppers Stop last year
Global retail giant Amazon India is eyeing a stake in Aditya Birla’s retail chain of stores More. The acquisition plans are clearly part of Amazon’s efforts to sharpen its arsenal so it can match up to the tough competition from the joint forces of its global rival Walmart and Indian rival Flipkart.
Amazon, along with Goldman Sachs and private equity fund Samara Capital, will form a consortium for the acquisition of food and grocery supermarket chain More. The deal is said to value More at an enterprise value of $644.09- $715.66 Mn (INR 4,500-5,000 Cr).
The idea is to float a separate company or a special purpose vehicle in which Amazon will pick up a 49% stake as the “strategic partner”. It is being speculated that the final structuring exercise is already on, ahead of a formal announcement at the end of this month or early next month.
In a report, ET cited people familiar with the development as saying that Samara and Aditya Birla Retail Ltd (ABRL) — a private company owned by well-known businessman Kumar Mangalam Birla — signed an “exclusivity” agreement at the end of June for bilateral negotiations.
It is being suggested that Samara, a mid-market, India-focused fund, had then reached out to Goldman Sachs and Amazon to join forces. The Goldman Sachs Special Situations Group will be the likely vehicle within the investment bank for this transaction.
The restructuring is in line with Indian foreign investment laws, which state that foreign companies can only hold up to 49% in multi-brand retailers like More.
However, foreign companies generally overcome this hurdle by creating holding entities in cash-and-carry retailing, where 100% overseas ownership is allowed. These, in turn, allow Indian-owned groups and entrepreneurs to run the front-end stores as their franchisees.
Prior to this, Amazon picked up a 5% stake in department store chain Shoppers Stop for INR 180 Cr in September last year. In the US this year, the company acquired Whole Foods for $13.7 Bn.
What’s In ‘More’ For Amazon?
Despite continuous losses, More is the fourth-largest supermarket chain operator in India and could provide Amazon just the edge it needs to challenge Walmart-Flipkart as well as local retail behemoths such as Reliance Retail and Kishore Biyani’s Future Retail.
The ABRL already runs 493 supermarkets and 20 hypermarkets under the More brand, covering more than 2 Mn sq ft of retail space, across the country. However, More lags behind the Future Group, Reliance Retail, and DMart in terms of the number of such outlets.
The company has a larger concentration and share of the organised retail trade in the southern states of Karnataka, Andhra Pradesh, and Telangana, where more than half its stores are situated.
In FY17, the ABRL reported a 20% increase in sales to $600.52 Mn (INR 4,194 Cr), with net loss narrowing to $92.21 Mn (INR 644 Cr). However, the company had a debt of about $941.14 Mn (INR 6,573 Cr) on its books and financing costs amounted to $67.43Mn (INR 471 Cr) for the year.
After significantly scaling down its operations, More achieved a store-level EBITDA (earnings before interest, taxes, depreciation, and amortisation) breakeven.
The chain, which had adopted a ‘go-deep, not-wide’ strategy for its grocery retail business, was focussed on core markets such as Hyderabad, Bengaluru, Chennai, Pune, Kolkata, and the National Capital Region, which are located close to its distribution centres.
More complements Amazon’s plans to venture into food retail in India; the plan has hit a major roadblock due to policy ambiguities, even though Amazon had received in-principle approval to invest $500 Mn in a subsidiary that was allowed to sell locally produced and packaged foodstuff, both online and offline.
Now, by looking to acquire More, Amazon may finally be able to make some headway in this direction, along with strengthen itself for the ecommerce battle in India.
[The development was reported by ET.]