Mukesh Ambani’s takeover of Future could be a B-School case study

Future Retail had sublet store space to Reliance Industries Ltd from the tycoon. Indeed, it only continued to operate on Ambani’s forbearance because Future could not pay the rent. But as continues to block Reliance’s $3.4 billion purchase of Future’s assets, Ambani has decided to make the acquisition a done deal: He has terminated the leases and is taking control of the properties.

It was the dramatic denouement of a three-year-old saga. Amazon was Future’s first rescuer, investing $192 million in a gift voucher unit controlled by its founder Kishore Biyani so he could use the money to stabilize the indebted Indian retailer.

The condition of that 2019 deal was that the assets – around 1,500 stores nationwide – would not be sold to Ambani, which has India’s largest retail empire. When Biyani did just that after Covid-19 decimated operations, Amazon sued Future for breach of contract. The Reliance deal was in limbo – until Ambani decided he had had enough.

The desperation was palpable in the messages Future sent to Reliance. “Please confirm that there will be no reduction in consideration payable,” said a March 2 missive from Future, as reported by Bloomberg News’ Saritha Rai and PR Sanjai. Then, a paragraph later, “It’s important that our stakeholders have visibility into the final consideration.” Did Future Retail live under a rock? Its bailout by Ambani was clearly always a business deal, not a humanitarian mission. It was Future’s job to take care of its stakeholders, including creditors.

And where is Amazon in all of this? By now he had to learn that it was futile to face Ambani on his home turf. Once the ground had shifted from under his feet, Amazon offered an out-of-court settlement regarding his cash injection into Future Coupons Pvt. – which had been his first shot in the drama. Amazon could not have saved Future Retail directly because India’s draconian foreign direct investment rules stood in the way. So he did the next best thing: fund private coupons and thereby indirectly exercise some control over Retail.

This control has proven to be tenuous. After accepting Reliance’s deal, Future wanted to withdraw from the contract with Amazon. Its independent directors complained to the Indian trustbuster that the multinational had deliberately misled the authority about the true nature of the coupon deal, which effectively put Amazon in control of Retail, in violation of India’s retail law. 2018 on foreign direct investment. The regulator quickly suspended its earlier approval of Amazon’s investment and the Delhi High Court halted the work of Singapore’s arbitration committee. (Singapore’s reputation as an Asian arbitration center attracts many cross-border deals to the city-state.)

But if the near-bankrupt company with a net worth of negative $280 million was betting the No. 2 rescuer would wait patiently while he worked out his legal issues with the No. 1 benefactor, he misjudged the situation. According to a March 9 disclosure from Future Retail, 342 of its large stores and 493 of its smaller outlets — making up 55% to 65% of retail revenue — have so far received notices of termination of underwriting. Reliance entity rentals.

It is dishonest for Future to now appear shocked, shocked, that his favorite savior is moving in before consummating the formal purchase, doing everything to make an omelette that cannot be deciphered by any authority: possession, after all, is nine-tenths of the law. Amazon had given the loss-making company an option until January for another $914 million bailout, but Future’s independent trustees deemed the offer inadequate given mounting debt. As it stands, it is up to Future 2025 dollar bondholders to determine whether they will be cured. Trading at around 60 cents on the dollar thanks to stealth acquisition, the notes do not appear to indicate overconfidence from creditors.

How does a physical recovery work? There’s inventory, furniture, lighting, and point-of-sale equipment, all pledged to creditors. “Your insistence on removing all such assets from stores may not be practicable and such removal may result in irreversible loss in value,” a March 5 letter to Reliance, this time from Future Lifestyle Fashions Ltd, reads. “We would ask your assets not to take any action regarding the assets as well as the premises until we can discuss it….”

Reliance’s good-me’s have nothing more to discuss. The result is as follows: at the instigation of Future Retail, the Indian judicial system has undermined the country’s arbitration law, without ever giving it the possibility of settling a simple commercial dispute. The consequences are for Future – and India – to bear.

It is now clear that, against tough opponents, the chances of enforcing a contract in the country are slim. No one should complain if foreigners are skeptical of India’s reported progress in ‘ease of doing business’. But it is a rapidly modernizing market of 1.4 billion consumers. a March 15 newspaper advertisement stating that Future was attempting to remove the “substrate of the dispute” by transferring its stores to Ambani “clandestinely”. The e-commerce giant has also informed India’s top court that the truce talks have failed. whether Amazon’s continued protests will deter Future lenders from blessing the de facto change of control — or if it’s already too late for that.

As for Future, he doesn’t have many. Extinction is a feature of capitalism. But the ignominious way in which an Indian pioneer of modern retail was torn down store by store because of the wrong choices he made should be the subject of a case study. However, before academics get busy, creditors need to know where the shelves and ATMs are. It’s their guarantee, after all, and the overriding lesson of this contest has been that everyone should grab what they can. While stocks last.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He was previously a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

This story was published from a news feed with no text edits. Only the title has been changed.

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