Amazon Serves Legal Notice to Future Group for Selling a Stake to Reliance Retail

By Mariliana Fotopoulou Thursday, October 8, 2020

Amazon has filed a legal notice against Future Group for violating terms of its agreement by selling a large portion of the business to Reliance Retail. Future Group, the largest retail chain in India, made an announcement in August about selling its retail and wholesale operations as well as its logistics and warehousing business to Reliance Retail, the largest retailer in India, for $3.4 billion.

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Amazon Launches Legal Action

Before the deal with Reliance Retail, Future Group had struck a deal with Amazon. The e-commerce giant bought a 49% stake in Future Coupons in 2019, a daughter company of Future Group.

The acquisition provided Amazon with a 3.58% stake in Future Retail as well as a right of first refusal to acquire an additional stake in the retailer both directly and through entities, the group said at the time.

“The Promoters have also agreed to certain share transfer restrictions on their shares in the Company for the same tenure, including restrictions to not transfer shares to specified persons, a right of first offer in favor of Amazon, all of which are subject to mutually agreed exceptions (such as liquidity allowances and affiliate transfers).The transaction contemplated above is subject to obtaining applicable regulatory approvals and customary closing conditions,” Future Group wrote in a filing for the local exchange.

At the time, an Amazon spokesperson told the media that the investment would “enhance Amazon’s existing portfolio of investments in the payments landscape in India. Amazon has agreed to invest in Future Coupons Limited, which is engaged in developing innovative value-added payment products and solutions such as corporate gift cards, loyalty cards, and reward cards primarily for corporate and institutional customers.”

Under the agreement between Amazon and Future Retail, the Indian group is also banned from striking a deal with certain companies. Earlier this year, Future Group provided services to millions of people across over 1,500 stores and in more than 400 cities.

Amazon to Acquire a Stake in Reliance Retail

Amazon’s decision to serve legal notice has baffled many in the industry as the US e-commerce company is reportedly preparing to buy a stake in Reliance Retail for billions of dollars, according to the Bloomberg and ET Now reports. This way, Amazon will join its rivals Facebook and Google by acquiring a 9.9% stake in Reliance Retail.

Analysts believe that Amazon’s decision to buy a stake in the Indian giant is essential for the e-commerce giant’s future in India, given that right now it’s controlling only between 3% and 7% of all retail sales in the country. Furthermore, Reliance Retail is preparing to start its own e-commerce business and compete with Amazon and Flipkart.

Until now, Amazon has invested over $6.5 billion in Indian local businesses and currently owns stakes in the Indian supermarket chain More and department store chain Shopper’s Stop.

“One thing to keep in mind is that e-commerce is a very, very small portion of total retail consumption in India, probably less than 3%,” said Amit Agarwal, manager of Amazon India. Indian retail sector is forecasted to rise in value to around $188 billion over next four years, compared to around $79 billion last year, according to research company Technopak Advisors.

Amazon confirmed the news about serving legal notice but it did not speak in detail because the matter is “sub judice,” while Reliance and Future gave no comment.

Reliance Retail launched back in 2006 and now offers services to over 3.5 million customers each week across almost 12,000 physical stores and more than 6,500 cities and towns in India.

The company’s chairman and richest man in India, Mukesh Ambani, has secured around $5.14 billion after selling an 8.5% stake of the company to Silver Lake, Singapore’s GIC, General Atlantic and others over the past few weeks.

Additionally, Ambani raised more than $20 billion in his other venture, Reliance Jio Platforms, from several major investors such as Facebook and Google. At the annual general meeting of Reliance Industries’ in July, Ambani said the company was looking to “induct global partners and investors in Reliance Retail in the next few quarters.”

Summary

Amazon has served a legal notice to Future Group for breaking terms of their agreement and selling a substantial stake of its business to India’s largest retailer Reliance Retail. The move has surprised many in the industry as the e-commerce behemoth was reportedly looking to buy a multi-billion dollar stake in Reliance and expand its business in India where it’s controlling around only 3-7% of all retail sales.

About the Author


Headshot for author Mariliana Fotopoulou

Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.

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