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RIL's retail arm to acquire Future Group's key businesses for Rs 24,713 crore

IBEF:  August 31, 2020

Reliance Retail Ventures Ltd. (RRVL) plans to acquire Future Group’s retail, wholesale, logistics and warehousing businesses for Rs 24,713 crore (US$ 3.51 billion), said the Reliance Industries subsidiary in a release. The deal between RIL and Future Group was announced on Saturday following a board meeting of Future Enterprises Ltd (FEL).

The all-cash deal has been carried out on a slump sale basis, said a media statement by RIL.

The deal is subject to adjustments as set-out in the composite scheme of arrangement said the release.

Under the agreement, Future Group will first merge certain companies carrying on the aforesaid businesses into Future Enterprises Limited (FEL).

Reliance Retail and Fashion Lifestyle Limited (RRFLL), a wholly owned subsidiary of RRVL will get retail and wholesale undertaking of Future Group along with its logistics and warehousing undertaking.

“As a result of this reorganisation and transaction, Future Group will achieve a holistic solution to the challenges that have been caused by COVID and the macro economic environment. This transaction takes into account the interest of all its stakeholders including lenders, shareholders, creditors, suppliers and employees giving continuity to all its businesses", said Mr Kishore Biyani, Group CEO, Future Group

RRFLL also plans to invest an additional amount of Rs 1,200 crore (US$ 170.24 million) in the preferential issue of equity shares of FEL to acquire 6.09 per cent of post-merger equity holding and Rs 400 crore (US$ 5675 million) in a preferential issue of equity warrants which, upon conversion and payment of balance 75 per cent of the issue price, will result in RRFLL acquiring further 7.05 per cent of FEL.

Ms Isha Ambani, director, Reliance Retail Ventures said, "With this transaction, we are pleased to provide a home to the renowned formats and brands of Future Group as well as preserve its business ecosystem, which have played an important role in the evolution of modern retail in India. We hope to continue the growth momentum of the retail industry with our unique model of active collaboration with small merchants and kiranas as well as large consumer brands. We are committed to continue providing value to our consumers across the country."

The company release added, “This will help Reliance retail to accelerate providing support to millions of small merchants in increasing their competitiveness and enhance their income during these challenging times."

Reliance Retail will acquire all Future group's key consumer-facing businesses built and owned by Biyani.

“RRFLL and RRVL will take over certain borrowings and current liabilities related to the business and discharge the balance consideration by way of cash," said a release by Future Group.

Although, FEL will hold the manufacturing and distribution of FMCG goods and integrated fashion sourcing and manufacturing business and its insurance JVs with Generali and JVs with NTC Mills.

Under this deal, there will be merger of five listed units of Future Group across grocery, apparel, supply chain and the consumer business into FEL, which currently manages the group’s retail back-end infrastructure.

After this deal, Reliance will become one of the largest retail formats in India, which will further RIL’s e-commerce ambition to leverage Jio’s subscriber-base and attract the large mass of customers belonging to non-metros and compete head-on with existing rivals Amazon and Flipkart.

The Reliance will have an immediate edge in the market as retail brands Big Bazaar, Fashion at Big Bazaar, Easy Day, and Brand Factory, are going to the company. The oil-to-telecom conglomerate already have an in-house multi-brand retail product. The deal will include retail, logistics, and warehousing assets.

Reliance Retail runs several retail formats in the grocery, electronics, and apparel space but it does not have as large a reach as Future Group, especially in the grocery business.

Reliance Retail will have a greater hold in the modern trade market with an additional 1,700-1,800 stores spanning fashion, lifestyle, and grocery segments.

Future Enterprises will subsequently sell by way of a slump sale the retail and wholesale business that includes key formats such as Big Bazaar, fbb, Foodhall, Easyday, Nilgiris, Central and Brand Factory to RRFLL.

“These businesses will further benefit from supply agreement with RRFLL. This deal will also enable FEL to focus on the creation of new age brands in the FMCG and fashion space and expand its reach. The transaction will help FEL to expand with a focussed business model and a stronger balance sheet," said the Future Group release.

The investment banker to Future Group was JM Financial.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.