Amazon.com Inc. will acquire an indirect stake in Kishore Biyani-founded Future Retail Ltd. as the Jeff Bezos-led firm plans to bolster its brick-and-mortar presence in one of the world’s fastest-growing retail markets.
Amazon.com NV Investment Holdings—the investment arm of the U.S.-based retailer—will buy a 49 percent stake, comprising both voting and non-voting shares, in Future Coupons Ltd., a promoter group entity of Future Retail, according to an exchange filing.
As part of the agreement, Amazon has been granted an option to acquire all or part of the promoter shareholding in Future Retail, the operator of Big Bazaar supermarkets. Amazon can exercise its option to buy the promoter shareholding in Future Retail between the third and tenth years.
Future Coupons, which handles the digital payments, retail payments and coupon businesses of Future Retail, holds 3.96 crore warrants in India’s second-largest retailer by turnover, issued at Rs 505 apiece. In February, Future Coupons said it would convert the warrants into shares of Future Retail for Rs 2,000 crore. It has paid Rs 500 crore upfront to Future Retail and, according to the market regulator’s norms, has to pay the remaining Rs 1,500 crore within 18 months. This will then give Future Coupons a 7.3 percent stake in Future Retail.
Now, Amazon will pay this outstanding Rs 1,500 crore for 49 percent stake in Future Coupons and will get an indirect 3.58 percent stake in Future Retail, one person aware of the development told BloombergQuint, requesting anonymity. After the transaction is completed, Biyani-controlled entities will own 50.8 percent stake in Future Retail on a fully-diluted basis.
While the valuation or the exact stake Amazon will hold in Future Retail hasn’t been disclosed, BloombergQuint estimates that the deal—subject to regulatory approvals and customary closing conditions—values the company at a premium to its current market price.
The deal values Future Retail at Rs 768.5 apiece, a premium of 87 percent to its closing price on Aug. 22, according to BloombergQuint’s calculations. That aggregates to Rs 41,666 crore, or $5.8 billion. To be clear, the valuations have been arrived at based on the recently concluded preferential issue of warrants in Future Retail to promoter Future Coupons.
Also, the promoters have agreed to certain restrictions on share transfers and, more importantly, a right of first offer in favour of Amazon, all of which are subject to mutually agreed exceptions, the Future Retail exchange filing said.
“It’s a win-win deal for both as Amazon gets access to one of India’s largest physical retailers, and Future Retail gets access to cutting-edge technology platform, analytics and one of the world’s largest company as its partner,” Abneesh Roy, executive vice president (research) at Edelweiss, told BloombergQuint.
Amazon had been in talks with Future Retail to pick up a stake in the company as it looks to tap into India’s rising demand for household products and home-delivered fresh produce and vegetables. This is the American giant’s third such investment in India—it purchased an equity stake in Aditya Birla Group’s chain of retail stores More in September, and in Shoppers Stop in 2017.
India’s retail market is estimated to grow from $672 billion to $1.1 trillion by 2020, a report by Assocham and MRRSIndia.com said. Retail sales through super and hypermarkets, according to India Brand Equity Foundation, are expected grow at 20 percent— twice the pace of traditional trade—over the next decade.
Shares of Future Retail fell as much as 8.1 percent—the biggest drop since September 2018—after Future Coupons’ deal with Amazon was announced. The stock, however, pared the losses and was trading 4.5 percent lower at Rs 394.10 apiece at 10.58 a.m.
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