India’s most valuable listed company with over Rs 14 trillion market capitalisation, Reliance Industries Limited announced the acquisition of Future Group for Rs 24,713 crore, aiming to boost its presence in the offline retail market. Reliance Retail Ventures Ltd (RRVL), a subsidiary of Reliance Industries Ltd, will acquire the retail & wholesale businesses and the logistics & warehousing businesses of the Future Group as going concerns on a slump sale basis which means that the Future group will transfer one or more undertakings to RIL as a result of the sale for a lump sum consideration (Rs 24,713 crore) without values being assigned to the individual assets and liabilities in such sales.
As a part of the acquisition, Future Retail, Future Lifestyle Fashions, Future Consumer, Future Supply Chains and Future Market Networks will merge into Future Enterprises Ltd (FEL). Shareholders of each companies will be allotted a fix number of shares of Future Enterprises Ltd subject to their holdings. Reliance Retail will then acquire Future Enterprises Limited businesses.
What’s in it for Reliance?
India’s retail market is expected to reach $1.3 trillion by 2025, compared to $700 billion in 2019, according to consultancy firm BCG and Retailer’s Association of India. Being the largest retailer in India, Reliance has over 11,000 stores across the country. Majority of Reliance Retail’s revenue is generated from consumer electronic segment which also accounts for nearly three-fourths of its overall store count. To compete with the global competitors like Amazon and Walmart, Reliance needed to boost its grocery and fashion & lifestyle segment in its retail arm which currently accounts for only 7% and 20% of the store count respectively.
Kishore Biyani who is known as “Father of India’s organised Retail”, understood the Indian market very well and brought the middle-class Indian consumer in his stores and retained the consumers. Big Bazaar and Easyday of Future Group made grocery shopping an event for the Indian consumers where they trusted the stores as they used to do with local kirana shops. Also, pricing was an important factor which Kishore Biyani realised was important to cater for attracting the consumers. He built the customer base over the last three decades and for Reliance it will be crucial to grow in this segment.
So, the answer to the acquisition of Future Group’s businesses is the Grocery and Fashion & Lifestyle segment. Reliance Retail will have access to around 1800 stores across Future Group’s Big Bazaar, FBB, Easyday, Central, Food hall formats, which are spread in over 420 cities in India.
Future Group after the acquisition:
Post the transaction, Future Enterprises Limited will retain the manufacturing & distribution of consumer products, fashion sourcing & manufacturing, insurance joint venture with Generalli and Textile partnership with NTC Mills. For Kishore Biyani, as a result of the agreement, he cannot enter the retail business for at least 15 years since the commencement of the deal.
Reliance Retail and Fashion Lifestyle Limited (RRFLL) also proposes to invest in Future Group post the acquisition at total sum of Rs 2800 crore in two ways,
- Rs 1,200 crore in the preferential issue of equity shares of FEL to acquire 6.09 percent of post-merger equity.
- Rs 400 crore in a preferential issue of equity warrants which, upon conversion and payment of balance 75 percent i.e. Rs 1200 crore, will result in RRFLL acquiring additional 7.05% stake.
Other Deals in Reliance Retail
To gain a significant market share in every segment it caters to, it has been expanding its fleet through acquisitions and new launches. In 2019, Reliance Brands acquired the British toy retailer Hamleys and Reliance Retail has the master franchise for the brand and operates across 29 cities. Also, the company launched JioMart – an online grocery service which will offer free express delivery of groceries from neighbouring local stores.
Recently, Reliance Retail announced an investment from Silver Lake worth $1.02 billion. It will grant Silver Lake a 1.75% stake in the entity and the deal values Reliance Retail at $57 billion.
With the recent acquisitions, Reliance Retail aims to widen the spread between the India’s largest retailer and the second largest retailer (Avenue Supermarts Limited). The Future Group’s retail and logistics will definitely give Reliance Retail an edge in grocery and fashion lifestyle segment. Amazon and Flipkart pose a threat to Retail with the online delivery of these products but in response to that, RIL has launched its JioMart. Thus, the future definitely looks promising for Reliance Retail.