Future Enterprises Will Meet Saturday to Decide RIL’s Retail Acquisition

Today, August 28, 2020, the Economic Times reported that the proposed deal between Future Group (Group) and Reliance Industries Ltd. (RIL or Reliance) for the acquisition of five listed units of Future Group’s retail arm would be finalized in the board meeting tomorrow. As per the report, the acquisition would allow RIL to control over “nearly 1,800 stores and bring in Rupees (Rs) 26,000 crore in additional sales,” which represents the “RIL’s domination of more than a third of India’s organized retail market”. However, Future Group and Reliance were not available for Reuters’ requests for comment.

Reliance, owned by Asia’s richest businessman Mukesh Ambani, has its operations from telecommunications to the oil industry and decided to expand its presence in the retail sector by launching its retail arm called JioMart in May 2020. Catering online service from grocery items to electronic products, JioMart has emerged a major rival to the existing e-commerce companies such as Amazon.com Inc. (Amazon) and Walmart Inc. Ltd.’s Flipkart in India.

Retail Acquisition Deal

Future Enterprises Ltd. (FEL), a retail arm of a leading India’s conglomerate company Future Group, is likely to strike a deal to sell some of its units to RIL on Saturday, August 28, 2020. As per sources familiar with the deal, the Group would combine “five listed units across grocery, apparel, supply chain, and the consumer business into Future Enterprises, which will then hive off all retail assets and sell them to Reliance as a single unit.” The sources stated that the acquisition deal would be valued at about Rs 290-300 billion ($3.92-$4.06 billion) and Reliance would hold a 14-16% stake in FEL’s shares. Under the deal, Reliance also agreed to pay for clearing Future Group’s debt and liabilities.

Future Group, founded by Kishore Biyani who is also known as India’s “father of modern retailing” in 1987, had been dominating the Indian retail sector for over the past two decades but is now burdened with net debt of Rs 129.89 billion. Group is popular for its wide range of services and various operations including supermarket chain Big Bazaar, upmarket food stores Foodhall, and bargain clothing chain Brand Factory. Following the news, shares in Future Enterprises Ltd. raised significantly up to 5%.

Reliance’s Fortune

Reliance has made its great fortune over a few years because of impressive performance in the telecommunication sector and others while it recorded a revenue of 1630 billion in its retail business last fiscal year. With the introduction of its online service, Reliance planned to expand its presence in other markets besides its strong retail unit, consumer electronics. Earlier this month, RIL announced about potential deals to buy online furniture company Urban Ladder and milk delivery startup Milkbasket to strengthen its e-commerce business.

Experts suggested that the latest deal could be a vital move for RIL to increase its portfolio in the groceries and apparel segments since India has a large scope for the retail market. According to a report by Euromonitor, India’s retail market size is about $635 billion (Rs 42 trillion) that is split 59:41 between grocery and other categories such as apparel, footwear, and electronics.