Reliance Industries has agreed to buy Future Group’s retail business across apparel, lifestyle and grocery segment, a deal that will help the Mukesh Ambani oil-to-media firm control more than a third of India’s organised retail market.
The acquisition including Reliance taking over all debts, liabilities, retail stores and a minority stake in its consumer business, with an investment of about Rs27,513 crore, involves merger of five Future Group’s listed entities including Future Retail, Future Lifestyle and Future Consumer – into Future Enterprises (FEL), which currently houses the group’s retail back-end infrastructure.
FEL will then sell the retail, wholesale business, logistics and warehouse business as a slump sale to Reliance Retail and Fashion Lifestyle Limited (RRFLL). RRFLL, a wholly owned subsidiary of Reliance Retail Ventures will also take over borrowings and current liabilities related to the business in an all cash deal worth Rs 24,713 crore.
Post the transaction, FEL will retain the manufacturing and distribution of consumer products, fashion sourcing and manufacturing business and insurance joint venture with Generali and textile partnership with NTC Mills. Reliance will also invest Rs 2800 crore in FEL, which includes 1200 crore in the preferential issue of equity shares for a 6.09% stake, and another Rs 400 crore in warrants, which when converted upon payment of balance 75% consideration of Rs1200 crore will result in an additional 7.05% stake.
“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,” Isha Ambani, Director, Reliance Retail Ventures Limited, said.
For Kishore Biyani, who is often called the father of India’s organised retail, this deal effectively means his exit from the segment he built over the past three decades. Founded in 1987 as the erstwhile Manz Wear and later Pantaloon Retail, Biyani used aggressive pricing to attract middle-class Indian consumers in his stores – Big Bazaar, Central and Brand Factory – and become a retail juggernaut. But it also led to his companies being burdened with a net debt of Rs 12,989 crore with the entire shareholding of the promoters being pledged with lenders.
“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”, Kishore Biyani, Group CEO, Future Group said in a statement.
This acquisition is subject to SEBI, CCI, NCLT, shareholders, creditors and other requisite approvals. JM Financial Securities advised Future Group promoters on the transaction.
The acquisition gives Reliance Retail sway over a network of nearly 1,800 stores and brings in Rs 26,000 crore in additional sales to create a Rs1.89 lakh crore ($26 billion) retail empire, seven times bigger than its nearest rival Avenue Supermarts, that runs D’Mart.
Reliance Industries, which clocked revenues of Rs 1.63 lakh crore in the retail business last fiscal hasn’t made a dent in the groceries and apparel segments, as it has in electronics.
According to Euromonitor, India’s retail market size is about $635 billion (Rs 42 lakh crore) that is split 59:41 between grocery and other categories such as apparel, footwear and electronics. At present, Reliance Retail’s store network within the pure-play retail business is skewed towards the consumer electronics segment that accounts for nearly three-fourths of its overall store count and generates a fourth of the revenues at Rs 45,000 crore.
In comparison, the grocery segment with 800 stores makes up just 7% of its store network but accounts for a fifth of its sales at Rs 34,600 crore, indicating the potential clout that RIL could achieve by adding the grocery stores of Future Retail. Fashion and lifestyle retail stores account for 20% of all Reliance Retail outlets but contribute 8% of overall sales at Rs 13,500 crore. Future Lifestyle manages about 400 stores across formats such as Central, Brand Factory and nearly three dozen apparel brands such as Lee Cooper, Clarks and Indigo Nation.