Analysts say the deal marks the company’s transition away from its energy business, towards becoming a consumer-focused retail and telecom company.
The oil-to-telecom major, which is boosting its presence in the retail segment through Reliance Retail, said the acquisition is being done as part of the scheme in which Future Group is merging certain companies carrying on the aforesaid businesses into Future Enterprises (FEL).
In a separate press release, FEL said its slump sale would include key formats such as Big Bazaar, fbb, Foodhall, Easyday, Nilgiris, Central and Brand Factory.
Reliance Retail and Fashion Lifestyle (RRFLL) and RRVL will take over certain borrowings and current liabilities related to the business and discharge the balance consideration by way of cash, FEL said.
Under the scheme, the retail & wholesale undertaking is being transferred to RRFLL, a wholly-owned subsidiary of Reliance Retail Ventures, along with the logistics & warehousing undertaking.
RRFLL also proposes to invest Rs 1,200 crore in the preferential issue of equity shares of FEL to acquire 6.09 per cent of post-merger equity, and Rs 400 crore 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.
RIL said the acquisition of the retail, wholesale and supply chain business of the Future Group complements and makes a strong strategic fit into Reliance’s retail business.
“The Future Group was under pressure due to piling debt and servicing issues, and the stake sale to RIL was best fit for them as they were compelled to sell assets. RIL had a war chest after the mega fund raising. For RIL, they now need not build the wholesale, logistics and warehousing unit,” said Hemang Jani, Head – equity strategy, broking & distribution at Motilal Oswal Financial Services.
Future Group’s net debt burden had piled up to around Rs 12,989 crore with the entire promoter holding pledged with lenders.
On August 24, the group managed to avert a default by making a payment of Rs 100 crore or $14 million on its foreign bonds.
“The key businesses for RIL are now telecom and retail, and energy just remains a legacy business. This also means oil & gas business will only contribute 20 per cent to the SOTP (sum of the parts) valuation,” said Jani, adding that RIL shares may see an uptick on Monday.
Ajay Bodke, CEO-PMS, Prabhudas Lilladher, said, “RIL is marching confidently towards its goal to emerge as a consumer-focused play, with Jio’s digital platform and now even stronger retail business.”
“The market had more or less discounted the deal, and broad contours were also known. It is a rescue for the highly indebted Future Group and its promoters,” he added.
Bodke said the market is expecting further induction of strategic and/or financial partners in the retail business.
“It will be no surprise if we see unlocking of value in the retail business as well,” he said.
He pointed out that the deal adds to Reliance Retail’s offline presence and they get access to a wide network, logistics and warehousing business, and is a good fit.
“It will be interesting to find out what happened to Amazon’s minority stake in one of the Future Group companies,” he added.
The deal will help Reliance Retail accelerate its support to millions of small merchants in increasing their competitiveness and enhance their income during these challenging times, the firm said in a statement.
“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,” Isha Ambani, Director, Reliance Retail Ventures, said.
The company said Future Group’s portfolio composition in apparel, general merchandise and FMCG brands will allow for a wider offering to its customers.
The deal could help RIL in its deep discounting strategy for JioMart, the e-commerce venture, which was launched two months ago that competes with Amazon and Flipkart.
Experts feel if RIL controls the entire value chain, they can use their bargaining power to beat down prices or introduce their cut-price versions to earn higher margins.
This acquisition is subject to SEBI, CCI, NCLT, shareholders, creditors and other requisite approvals, it added.
India’s retail market is expected to grow 8 per cent compounded annually to $1.32 trillion by FY26 from $822 billion at present.
Within this, organised retail is seen growing at 17 per cent compounded annually to $230 billion from $89 billion, as the share of organised retail is seen rising to 18 per cent of the market by them from 11 per cent.
On Friday, RIL shares closed 0.2 per cent higher at Rs 2,115.60 on the BSE, while benchmark Sensex climbed 0.9 per cent to 39,367.31 points. They have jumped 144 per cent from their March lows.