For the last two years, India witnessed a high–pitch battle between the world’s two richest business tycoons– Jeff Bezos and Mukesh Ambani. The bone of contention was Kishore Biyani-owned Future Retail Group, a company buried under mounting losses. With the ambition to capture India’s $900 billion retail market which is set to grow to $1.3 trillion by 2024, both Ambani and Bezos were willing to go to any extent to seal the deal.
But on Saturday ( April 23), something unexpected happened. Reliance Retail Ventures Ltd (RRVL), the retail holding company of Mukesh Ambani owned Reliance Industries (RIL) called off its Rs 24,713 crore takeover bid for Kishore Biyani's retail business under Future Retail Ltd (FRL). In a notice to stock exchanges, RIL said secured creditors of FRL voted against RIL's proposal. "In view thereof, the subject scheme of arrangement cannot be implemented," said RIL.
On Friday, a regulatory filing to the stock exchanges from FRL said 69.29 per cent of secured creditors voted against the plan while 30.71 per cent were in favour of the deal. On the other hand, 78.22 per cent of the unsecured creditors voted in favour of the Reliance-Future deal while 21.78 per cent voted against it.
Among the shareholders of FRL, 85.94 per cent voted in favour of the deal while 14.06 per cent voted against it.
For the deal to get through, Future Retail needed 75 per cent approval from its secured creditors, something that did not happen.
The first reading of the cancellation of the deal will make anyone believe that Mukesh Ambani walked out of the deal without any gains, and Bezos would be a happy man, with an option to acquire FRL. Bezos- who runs the world’s biggest e-commerce company Amazon- had made an offer of Rs 7,000 crore to Kishore Biyani to acquire his retail business, putting legal pressure on the latter to cancel his deal with Ambani. At a time when Ambani has backed out of the deal, Bezos should be a relieved man for at least not allowing the former to take over the business of FRL.
But a closer look at RIL’s strategy over the last few months, would reveal that events panned out exactly the way Ambani had planned in the face of stiff legal resistance put up by Amazon through international arbitration.
In February this year, RIL started the process of taking over 800 out of the 1,400 brick and mortar stores of FRL, which accounted for 60 per cent of the latter’s revenue. These stores included FRL’s flagship brand Big Bazaar along with FBB, Easyday and Heritage. RIL used the strategy of taking over the lease of these stores from FRL by getting directly into the deal with the owners of the real estate where these stores were located. RIL then ousted FRL as the tenant from those leased stores and has opened its own brands at the same retail spaces. Experts say that a significant number of the remaining stores of Future Group are non-operational and have no value even for the creditors.
As per National Company Law Tribunal Rules, a scheme must secure at least 75 per cent votes in favour from each of the three groups of shareholders, secured creditors, and unsecured creditors to move forward. Now that RIL has called off the deal, Future group will face the bankruptcy proceedings under the Insolvency and Bankruptcy Code. The company owns around Rs 20,000 crore to its secured creditors including banks and around Rs 8,000 crore to its unsecured creditors and vendors. As per the regulatory filing, Future Enterprises has defaulted on its payment worth ₹2911.51 crore to various consortium banks and lenders between 23rd March 2022 to 31st March 2022.
Given the fact that Future Group was not even able to fill its inventory due to lack of funds for the last one year, it would be a limited amount that any of the lenders would be able to recover under bankruptcy.
What will Bezos do after this? He has no option but to proceed with the legal battle that is unlikely to yield anything substantial.
