Future Retail enters into a legal tangle with Amazon

Shares of Future Retail slumped more than 5% Thursday after online giant Amazon issued legal notice to Kishore Biyani-led Future Group over its Rs 24,700-crore asset sale to Reliance Retail Ventures (RRVL), calling it a breach of a 2019 agreement between Amazon and Future.
In a notice sent on Monday, the multinational online retailer said that the sale violated the non-compete agreement and several related clauses mentioned in an August 2019 contract through which it had bought a 49% stake in Future Coupons, a subsidiary of Future Group.

Amazon has simultaneously also informed both the stock market regulator and the stock exchanges.
Amazon’s contention is that the Future Group should have taken its formal approval before entering into any type of deal with any entity directly or indirectly associated with control/management of any type of retail business.
A clause between Future Group and Amazon clearly stated that Future Group could not sell any asset within 10 years of the deal with Amazon. The right of first refusal (RoFR) was on Biyani’s own shares.
In August, Reliance Retail Ventures said that it will acquire the retail, wholesale and logistics business of debt-laden Future Group.

Amazon acquired a 49% stake in Future Coupons in August last year. As part of the investment, it got the rights to acquire Biyani’s promoter group stake in Future Retail at a future date.
As part of the agreement, Amazon has been granted a call option. This call option allows Amazon to acquire all or part of the promoters’ shareholding in Future Retail, and is exercisable between the third to the 10th years, in certain circumstances, subject to applicable law.

With the acquisition of the retail business of Future Group, Reliance Retail has become one of the biggest competitors to Amazon and Walmart Inc. owned Flipkart in India.
As a part of the agreement between Future Group and Amazon last year, the promoters had agreed to certain transfer restrictions on their shares in Future Retail, including restrictions to not transfer shares to specified persons, a right of first refusal in favour of Amazon and so on.

Disclaimer –
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.