Mukesh Ambani’s Reliance Industries Ltd (RIL) has agreed to acquire the retail business of Kishore Biyani’s Future Group in a mega deal involving a consideration of Rs 24,713 crore.
After months of negotiations, Reliance Retail Ventures Ltd (RRVL), a subsidiary of RIL, announced Saturday that it is acquiring the retail and wholesale business, including the Big Bazaar hypermarket chain, and the logistics and warehousing business from the Future Group as going concern on a slump sale basis.
Biyani, who was known as the “retail king”, was overburdened with a debt of Rs 12,778 crore and faced repayment issues.
Why this is key to RIL plans
The deal strengthens RIL’s position in the country’s retail ecosystem by enabling it to control nearly a third of organised retail revenues, and also bolsters Reliance’s own retail plans. The company recently launched its online grocery portal under the JioMart brand and the cross-linkages between Future Group’s large logistical and warehousing footprint will add to its presence in retail and wholesale businesses.
This deal will help the Reliance group command a dominant position in retail space, paving the way for a battle with US retail majors Amazon and Walmart-controlled Flipkart.
Combining the heft of the top two players in India’s organised retail sector, the deal propels Reliance Retail to a position of control of over Rs 2 lakh crore of India’s retail turnover, comprising almost a third of the organised retail pie.
“Reliance already was way ahead of any other retailer in the country and this further increases the gap between Reliance Retail and all other retail businesses… as of March 31, Reliance Retail had an annual turnover of Rs 1.65 lakh crore. Future Group would have had a turnover for the year ended March 31 — although they are yet to declare results — of around Rs 35,000 crore,” Arvind Singhal, CMD of retail research firm Technopak said.
Prior to the outbreak of Covid-19, Technopak estimated the market size of India’s retail sector to be $825 billion, of which around $85 billion was organised or modern retail. The Reliance-Future Group deal puts around 30 per cent of this with a single entity, Singhal said.
“Reliance has thousands of stores across cities in India. Their reach is very vast in any case, and it will only become stronger now. All these businesses were integral to Future Retail’s core operations. They may be separate companies, but they were working for each other,” he said.
According to India Brand Equity Foundation, the hypermarkets and supermarkets space is led by Future Group’s Big Bazaar and Easyday — Big Bazaar has 295 stores and Easyday around 800 stores across the country. HyperCity, which was bought by Future Group in 2017, has 20 stores.
Reliance, on the other hand, has 621 Reliance Fresh supermarket stores, 670 fashion stores under Reliance Trends brand, in addition to more than 50 cash-and-carry stores under the Reliance Market brand.
In terms of revenues, Avenue Supermarts, which operates the DMart stores, is the third largest retailer in the country, followed by More Retail, which was formerly owned by the Aditya Birla Group.
As part of the deal, the Future Group, which was struggling to keep afloat after Covid-19 hit the traditional retail business, will initially undergo a reorganisation of its businesses in which the key group companies including Future Retail, Future Lifestyle Fashions, Future Consumer, Future Supply Chains and Future Market Networks will merge into Future Enterprises Limited (FEL).
Future Enterprises will subsequently sell by way of a slump sale the retail and wholesale business that includes key formats such as Big Bazaar, fbb, Foodhall, Easyday, Nilgiris, Central and Brand Factory to Reliance Retail and Fashion Lifestyle Ltd (RRFLL), a wholly owned subsidiary of Reliance Retail Ventures Ltd (RRVL). It will also sell the logistics and warehouse business to RRVL by way of a slump sale.
“Reliance Retail is not a listed entity and if you see the valuation of DMart, Aditya Birla Fashion, Reliance Industries enjoys a much higher multiple, so while today it might look like Reliance is paying around Rs 27,000 crore, its valuation will go higher because of the additional turnover and its dominant position. So one year from now, if Reliance were to raise money, we will realise that they bought Future’s business almost free of cost,” Singhal said.
RRFLL and RRVL will take over certain borrowings and current liabilities related to the business and discharge the balance consideration by way of cash. After this transaction, Biyani’s FEL 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 logistics and warehousing undertaking will be transferred to RRVL and the Reliance arm will also invest Rs 1,200 crore in the preferential issue of equity shares of Future Enterprises to acquire 6.09 per cent of post-merger equity, and Rs 400 crore in a preferential issue of equity warrants which, upon conversion and payment of balance 75 per cent of the issue price, will result in RRFLL acquiring further 7.05 per cent of Future Enterprises.
“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,” Kishore Biyani, Group CEO, Future Group, said.
It was Biyani who spread the retail chain culture in the country through his Big Bazaar chain and several other retail ventures. In 2012, Biyani sold his fashion retail chain Pantaloons to the Aditya Birla group for Rs 1,600 crore.
Biyani said this deal will also enable FEL to focus on the creation of new age 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.
Isha Ambani, Director, Reliance Retail Ventures, said: “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.”
Reliance Retail reported a consolidated turnover of Rs 162,936 crore and a net profit of Rs 5,448 crore for the year ended March 31, 2020.
Reliance said the acquisition of the retail, wholesale and supply chain business of the Future group complements and makes a strong strategic fit into Reliance’s retail business. “This will help Reliance retail to accelerate providing support to millions of small merchants in increasing their competitiveness and enhance their income during these challenging times,” RIL said.
Future Group’s portfolio composition in apparel, general merchandise and own FMCG brands will allow for a wider offering to its customers. This acquisition is subject to the SEBI, CCI, NCLT, shareholders, creditors and other requisite approvals.
“We are pleased that our strong retail franchise and brands that we have created over time, are going to stronger hands and will continue to grow and delight Indian shoppers,” Biyani said.
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