Amazon-Future tussle over Reliance Retail deal baffles analysts

As the Amazon-Future Retail battle over the latter’s $3.4 billion asset sale to rival Reliance Retail takes new twists and turns, analysts are baffled about the real reason behind the spat. Worse, if prolonged, it could be ‘lose-lose’ for all, they say

Amazon-Future tussle over Reliance Retail deal baffles analysts
Amazon scores an Indian win as a local court freezes Future's retail deal with rival Reliance Retail, while analysts wonder what the fuss is all about. Photo: Reuters

(ATF) The spat between Amazon and its Indian partner, the Future Retail over its sale of a swathe of assets to rival Reliance Industries just got fiercer with the two moving to the Delhi High Court this week. But analysts are baffled as to why the two are wrangling now, after the deal has been struck.

The Delhi High Court on Tuesday blocked Future Group's sale of a swathe of assets to rival Reliance Industries after Amazon raised objections to the $3.4 billion deal signed in August last year.

But Future Retail moved the Delhi High Court on Wednesday against the single judge order directing the company to maintain status quo and added it would explore all legal recourse.

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“What is baffling is both Reliance and Amazon are ace dealmakers and Amazon’s investment in the Future Group was in public domain. So, surely both Amazon and Reliance were aware of their common interests in Future’s assets and it is intriguing that they did not sort it out before the Future-Reliance deal,” Ankur Bisen, the senior vice president of the retail and consumer products consultant firm Technopak, told Asia Times Financial.

“I am also baffled that Amazon is staking a claim on Future's assets after the deal, and that Reliance Retail did not sort Amazon out before signing the deal. Could there be something that the world does not know, which is why the whole exercise is just posturing to seek a settlement out of the court more than anything else,” he added.

Indeed, the corporate battle that has embroiled sprawling businesses led by two of the world’s richest men - Amazon’s Jeff Bezos and Reliance’s Mukesh Ambani not only involves high stakes for both. But it could also reshape the entire shopping sector of India.

RELIANCE DOMINANCE

It could help determine whether Amazon will be able to eat away at the dominance of Reliance, which sells through its network of more than 12,000 stores, at a time when the pandemic has seen shoppers race online.

The US online giant had its sights set on ultimately owning part of the retail assets itself, and had argued that it had a 2019 deal with a unit of Future prohibiting the Indian group from selling them to anyone on a “restricted persons” list including Reliance.

But Future said it was not bound by that clause even as Amazon last month urged the Delhi High Court to enforce it.

The Tuesday decision then is a setback for Future, the country’s second-largest retailer with over 1,700 stores. It has said it could face liquidation if the deal with Reliance falls through.

Yet, while Amazon, Future and Reliance fight it out relentlessly hoping for a court verdict, the legal wrangling is threatening to put the development of India’s burgeoning retail sector in jeopardy, say experts.

IN THE MIDDLE

“I look at it as a tussle between the two giants Amazon.com and Reliance Retail where Future Retail is merely caught in the middle. This is a rather unfortunate development at a time when the retail industry needs to stabilise and work towards devising an appropriate business model post-Covid,” Alvis Lazarus, the chief executive of the supply chain and management consulting firm Hesol Consulting, told ATF.

Some also wonder why the world’s largest e-commerce company is seeking to derail a deal that’s essentially bailing out a beleaguered retailer, whose market valuation is minuscule.

According to Lazarus, given the past experience of the time taken for such cases to be solved under the Indian legal system, it could take years before an amicable settlement could be arrived at in the courts. 

“So, if the issue is not sorted out soon outside the court, I think this is going to be a lose-lose for all; not just for Reliance and Future but also for Amazon. Already you can see the shareholders of Reliance getting nervous,” Lazarus said.

  • With reporting by Reuters

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Amazon.com Jeff Bezos Mukesh Ambani Reliance Retail Future Retail Indian Retail Sector