If you are among the ones that have anything to do with Future Group, the latest development, and its reciprocal impact may disappoint you to a great extent. The future of Future Group seems bleak and the bankruptcy seems to be inevitable now.
India has witnessed two years of high-stakes battles between two of the most powerful business tycoons in the world, Jeff Bezos and Mukesh Ambani in the past two years. The bone of contention between the two was debt-laden Kishore Biyani’s Future Retail Group which is buried under mounting losses. Both Ambani & Bezos wanted to capture India’s flourishing $883 billion retail market in 2020, which is estimated to grow to $1.3 trillion by 2025.
On Saturday, April 23, the world started crumbling down for all shareholders who believed that the Future Group will bounce back to its glorious days under the umbrella of Reliance Industries.
Reliance Retail Ventures Ltd. (RRVL), Mukesh Ambani’s retail holding company, walked away from its Rs 24,713 Crore takeover bid for Kishore Biyani’s Future Retail Ltd. (FRL) on Friday. RIL sent a notice to stock markets stating that the majority of secured creditors of FRL had voted against RIL’s proposal. RIL stated that it’s impossible to move ahead to complete the acquisition of Future Retail in light of this.
After concluding the voting, FRL informed the regulators that 69.29% of secured creditors opposed the plan of RIL and 30.71% were in favor of it. In contrast, 77.22% of unsecured creditors voted for the Reliance Future deal and only 21.78% voted against it.
At the same time, 85.94% of FRL shareholders voted in favor and only 14.06% opposed it.
Future Retail needed a vote of confidence from 75% of its secured creditors in order for the Future Reliance deal to go through.
Bezos vs Mukesh: The last laugh
Anyone following the news certainly believes that Mukesh Ambani walked away from the deal without any gains. Bezos, on the other hand, has the last laugh with the option to purchase FRL. Make no mistake, Bezos, who owns the largest e-commerce site Amazon, had offered Rs 7,000 crore for Kishore Biyani in order to buy his retail business. This put legal pressure on Ambani to end the deal. Now that Reliance has decided to walk off, Bezos should feel relieved as the debt-ridden Future Retail has left with not many options but to turn back towards Amazon to safeguard the interest of its shareholders and stay afloat.
However, a teardown analysis of RIL’s strategy reveals that the RIL gained what it aimed for without acquiring Future Retail. In the last few months events unfolded exactly as the way Ambani wanted.
RIL began the process of taking over 800 of FRL’s 1,400 brick-and-mortar stores in February. Ambani very carefully handpicked those stores as the selected stores accounted for 60% of FRL’s revenue. These stores housed FRL’s flagship brands Big Bazaar, Easyday, Heritage, and FBB. RIL used the strategy of ‘direct approach’ to take over these stores’ leases from FRL. The company directly negotiated with the owners of the retail property where the selected FRL stores were located. Once successfully taken over, RIL kicked FRL out of the leased stores and opened its own brands in the same spaces.
Experts believe that now if Amazon succeeds in striking any kind of deal with FRL, it will be a daunting task for the company to capture the market as many of the leftover stores of Future Group are still in non-operation mode and therefore have no value for creditors. The business from these stores is not lucrative enough for creditors as well as any other possible acquirer.
FRL Bankruptcy Inevitable?
National Company Law Tribunal Rules require that any proposal must receive at least 75% votes from each of the three groups: secured creditors, shareholders, and unsecured creditors before it is set for execution. Future group is now staring at bankruptcy proceedings under the Insolvency and Bankruptcy Code, as RIL has canceled the deal.
The company owes a whopping Rs 28,000 crore to its creditors; approximately Rs 20,000 crore to its secured creditors, including banks, and Rs 8,000 crore to its unsecured creditors and suppliers. According to regulatory filings, Future Enterprises already defaulted on Rs 2,911.51 crore payment to several consortium banks and lenders from 23 March 2022 to 31 March 2022. The company is yet to disclose its future strategies in regards to clearing pending dues.
How bad the situation is for FRL? This could be well understood from the fact that Future Group even failed to fill its inventory due to a lack of funds over the past year. And, even if the company goes into Bankruptcy lenders will hardly be able to recover the amount.
The stock of FRL tanked 5% on Monday with the opening of the market.
As the new development eventually brings the curtain down on the possible acquisition of Future Group by Reliance, will it also end the legal battle between Amazon and Future Retail? In the current circumstances, Bezos has no choice but to continue with the legal battle, which is unlikely to produce anything significant. For Future Group the possible runway has just vanished all of sudden, and surviving is more important than indulging in the legal battle. Does it provide Amazon an edge because beggars are not choosers!
Can Future Group ditch the complete collapse with a masterstroke that may come from the books of Biyani who is known for his mastery of the retail segment? You never know, but at this time the odds don’t seem to be in his favor.
