Reliance Retail Ventures Ltd. (RRVL) will acquire Future Group’s retail, wholesale, logistics and warehousing businesses for ₹24,713 crore, the Reliance Industries subsidiary said in a release. The much-awaited deal between RIL and Future Group got its go-ahead 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.
Mint, with its 11 June report, was the first to say that Reliance Retail was in advanced discussions to acquire these businesses from the debt-laden Future Group.
The deal is subject to adjustments as set-out in the composite scheme of arrangement said the release.
As a part of the acquisition, Future Group will first merge certain companies carrying on the aforesaid businesses into Future Enterprises Limited (FEL).
The retail and wholesale undertaking of Future Group will be transferred to Reliance Retail and Fashion Lifestyle Limited (RRFLL), a wholly-owned subsidiary of RRVL.
The logistics and warehousing undertaking will be transferred to RRVL directly.
“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 Kishore Biyani, Group CEO, Future Group
RRFLL has also proposed to invest ₹1,200 crore in the preferential issue of equity shares of FEL to acquire 6.09 % of post-merger equity holding; and ₹400 crore in a preferential issue of equity warrants which, upon conversion and payment of balance 75% of the issue price, will result in RRFLL acquiring further 7.05% of FEL.
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.”
“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,” said the release.
Reliance Retail will takeover all of Future group’s key consumer-facing businesses built and owned by Biyani, who was once named as the retail king of India.
To salvage Biyani from his companies’ heavy debts, which essentially prompted the deal, RIL is also expected to take all the debts and liabilities of Future Group.
“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.
After this transaction, FEL, however, will retain 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.
The deal terms entail a 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.
Mint had reported that Future Retail Ltd, Future Consumer, Future Lifestyle Fashions, Future Supply Chain and Future Market Networks, will be merged into FEL before the company sells the retail assets to the retail subsidiary of RIL.
FEL will then hive off all retail assets and sell them to RIL as a single unit.
This is not the first time Biyani has been forced to sell off his companies to escape the debt burden. As on 30 September 2019, debt at Future Group’s listed companies came at ₹12,778 crore. Back in fiscal 2012, Biyani was grappling with an equally heavy debt of ₹12,000 crore, which had forced him to sell his most valuable asset Pantaloons Retail to Aditya Birla group for ₹1,600 crore. He also had to sell Future Capital to Warburg Pincus for ₹4,250 crore.
The latest deal will get Reliance 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.
With household retail brands Big Bazaar, Fashion at Big Bazaar, Easy Day and Brand Factory, going to Reliance, the oil-to-telecom conglomerate will have an in-house multi-brand retail product, which may give Reliance an immediate edge in the retail market. 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.
The deal could give Reliance Retail greater hold in the modern trade market with an additional 1,700-1,800 stores spanning fashion, lifestyle, and grocery segments.
The deal with RIL is seen as critical for Future’s stakeholders.
Lenders to the group have asked the company to also expedite the sale of the group’s two insurance businesses to reduce the debt burden.
FEL holds 49.91% in the general insurance business and 33% in the life insurance business. While SBI General is likely to buy out Future Group’s general insurance business, the sell-off talks in the life insurance business too are in advanced stages.
Even after the latest sell-off of Future Group’s retail business to RIL, the lenders of the group are not hopeful of getting their entire repayment amount.
In fact, the lenders may have to take a haircut of up to 40% on Future’s exposure worth ₹12,000 crore, said a person directly aware of the development.
Apart from the group-level debts, banks have an exposure of another Rs. 11,970 crore to the promoter entities of the Future group.
The lenders of the group have demanded access to Future group’s real estate portfolio which will be hived off into a separate company.
Reliance has also asked Future Group’s vendors to take a haircut of around 40% on their past dues. Some of the top Indian FMCG companies including ITC and HUL are suppliers to Future Group’s retail stores.
The latest deal was expected to be closed this month since many of Future Group’s lenders wanted the group to resolve the debt issues before the moratorium ends on 31 August.
The Future group companies had opted for the covid-19 pandemic moratorium package announced by the Reserve Bank of India in March.
Biyani had recently shifted focus to neighbourhood format retail stores EasyDay, Nilgiris and Heritage. But these ventures failed miserably.
“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.
Post this exercise, Future Group said FEL will emerge strong with businesses in manufacturing and distribution of FMCG products and integrated fashion sourcing and merchandising.
“These businesses will further benefit from supply agreement with RRFLL. This deal will also enable FEL to focus on the creation of newage 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.
Biyani’s companies constantly faced losses over the past year.
Biyani hoped to attract loyalty in smaller format stores with a ₹999/ year loyalty programme for a 10% discount. The model didn’t work.
Unlike selling well-known third-party brands during earlier days, almost 35%-40% merchandise at Future Group formats started selling Future Group’s own brands over the past few years, which failed to attract customers.
An executive director at a public sector bank said that while the companies are stressed, they are still categorised as standard assets on their books. These companies had availed of the loan repayment moratorium which ends on 31 August, the banker cited above said.
He added that as per the original plan discussed with lenders, there was no haircut involved as Future Group will repay some of the outstanding dues from the proceeds and the rest of the liabilities will be taken over by RIL.
JM Financial was the investment banker to Future Group.