Reliance-Future Group Deal: Amazon's Protest Ignored

Reliance Retail, the leading retail chain in India, announced on Sunday evening that its planned acquisition of Future Group’s assets for a substantial $3.4 billion is legally sound under Indian regulations and the company is determined to finalize the transaction “without any delay.” This announcement comes as Amazon has initiated legal action concerning the deal.

A statement from Mukesh Ambani’s company followed an emergency order secured by Amazon earlier that day from a Singapore arbitration court, temporarily suspending the proposed sale between the two major Indian retail companies. Sources indicate that this injunction is expected to pause Future Group from selling its assets to Reliance Retail for approximately 90 days. 

The American e-commerce company, which acquired an indirect 3.58% stake in Future Group’s Future Retail business last year, previously appealed to the Singapore International Arbitration Centre this month to prevent what could become the largest retail transaction in India.

Amazon’s agreement with Future Retail granted the American e-commerce giant the initial right to purchase additional stakes in Future Retail, as stated by the Indian firm at the time. Previous reports in the local media suggest the agreement between Amazon and Future Retail also included a clause preventing competition. Furthermore, the two companies established another agreement earlier this year, providing Amazon with “long-term” rights to distribute Future Group’s products online.

Amazon, Flipkart (owned by Walmart), and Ambani’s Reliance Industries – India’s most valuable company – are currently engaged in a competitive struggle for dominance in the Indian retail market.

In a statement, an Amazon spokesperson expressed the company’s gratitude for the order, stating it secures all requested remedies and reaffirmed their commitment to a swift resolution of the arbitration process. Tribunal hearings are anticipated to commence later this year.

Future Group, which has not yet publicly responded to Amazon’s objection, entered into the agreement with Reliance Industries due to the financial difficulties caused by the pandemic, as explained by its founder, Kishore Biyani, at a recent virtual conference.

The enforceability of today’s injunction within India remains uncertain. A Reliance Industries spokesperson stated that Reliance Retail’s acquisition of Future Retail’s assets and business was conducted with “proper legal advice” and that the “rights and obligations are fully enforceable under Indian law.”

The spokesperson for the retail giant, controlled by India’s wealthiest individual, Ambani, affirmed that Reliance Retail “intends to enforce its rights and complete the transaction in terms of the scheme and agreement with Future group without any delay.”

The legal proceedings in Singapore have surprised many within the industry, particularly as Amazon is reportedly preparing to acquire a multi-billion-dollar stake in Reliance Retail, according to earlier reports from ET Now and Bloomberg.

Given that e-commerce currently accounts for only 3-7% of all retail sales in India – and with Reliance Retail launching its own e-commerce platform to compete with Amazon and Flipkart – Amazon’s potential deal with Reliance Retail is widely considered by industry analysts to be vital for the American e-commerce firm’s future success in India. Amazon has invested over $6.5 billion in its Indian operations since beginning its journey in the country seven years ago.

Established in 2006, Reliance Retail currently serves over 3.5 million customers weekly (as of earlier this year) through its nearly 12,000 stores located in more than 6,500 cities and towns across the country.

The retail chain, led by Mukesh Ambani, has secured approximately $5.14 billion by divesting an 8.5% stake in its business to investors including Silver Lake, Singapore’s GIC, and General Atlantic over the past two months.

Ambani’s other company, Jio Platforms, raised over $20 billion this year from more than a dozen prominent investors, including Google and Facebook.

Meanwhile, Walmart’s Flipkart acquired a 7.8% stake in Aditya Birla Fashion, a fashion retail conglomerate operating over 3,000 stores in India, for $203.8 million on Thursday. Flipkart holds a leading position in online apparel sales in India, largely due to its acquisition of the fashion e-tailer Myntra in 2014. The Walmart-owned company has continued to invest in strengthening its fashion category over the years, including a $35 million investment in Arvind Fashions in July.

Updated at 1:30PM IST on October 26: In a filing (PDF) to the local stock exchange, Future Retail stated that it is reviewing the order issued by the Singapore International Arbitration Centre. “It may be noted that the Company is not a party to the agreement under which Amazon has invoked arbitration proceedings,” the company noted.

“FRL has been legally advised that actions taken by FRL / its board, which are in full compliance of the relevant agreements and are clearly in the interest of all stakeholders, cannot be prevented by arbitration proceedings initiated under an agreement to which FRL is not a party. According to the advice received by FRL, all relevant agreements are governed by Indian Law and the provisions of the Indian Arbitration Act for all purposes, and this matter raises several fundamental jurisdictional issues that are central to the case. Therefore, this order will need to be evaluated under the provisions of the Indian Arbitration Act in the appropriate legal venue. In any enforcement proceedings, FRL will take the necessary steps to ensure the proposed transaction proceeds without delay,” a company spokesperson added.