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Why stationery retailer Staples exited its joint venture with Future Group in India

Staples has booked a charge of $26.2 million related to the termination of the joint venture agreement with the local partner.

Staples Inc, the world’s largest office supplies firm, made a surprise exit from its six-year-old joint venture with Future Group earlier this year. This came at a time when the market was expecting Kishore Biyani-led Future Group to sell out as part of its exit from various non-core businesses to cut debt.

It now appears that Biyani was, indeed, keen to exit the venture, but a dispute over asking valuation at which Staples was to buy out the local partner led to the termination of the JV, according to an SEC filing by Staples.

Staples held 39.49 per cent stake in the JV called Staples Future Office Products Pvt Ltd, which was formed in January 2007, while the rest was split among Future Group (43.6 per cent) and top executives including its co-chiefs Shailesh Karwa and Sharad Dalmia.

Last July, the local partners sought to exercise their put option rights, following which they had the right to ensure that Staples would purchase their shares at fair market value. Staples disputed the valuations prepared to determine the fair market value and sought to resolve its dispute with the local shareholders.

It was not successful, though, and on February 2, 2013, it concluded the negotiations and terminated all agreements associated with the existing joint venture. Thereafter, Staples exited by selling its stake to the local shareholders and now Future Group holds around 60 per cent stake. Simultaneously, Staples entered into a new franchising arrangement for future operations in India.

It has been also disclosed that Staples recorded a charge of $26.2 million in the fourth quarter of 2012 related to the termination of the joint venture in India.

Replying to an e-mail query sent by VCCircle, Staples Inc spokesperson said, “There are no details available beyond those included in the company filing.”

When contacted, Sharad Dalmia, co-CEO of Staples Future, said, “As a privately held company, we do not comment on shareholdings and do not discuss it in public domain.”

In an earlier interaction, Staples Future co-chief Shailesh Karwa said that the Indian venture should attain a certain size in revenue terms before it could become a subsidiary of a large firm like Staples. He also added that Staples held convertible securities, which would allow it to buy out the company at a later date.

In 2007, Karwa and Dalmia sold their three-year-old online B2B stationery supply venture Officedge India to the Future Group. In a simultaneous move, Future Group formed the JV with Staples, and Karwa and Dalmia became co-CEOs of the new venture. Staples Future caters to more than 1,000 large corporate houses including the Staples-branded offline retail chain, which is separately run by the Future Group as a franchisee of Staples, via its e-commerce portal.

(Edited by Sanghamitra Mandal)

Staples Inc. is engaged in manufacturing of office supplies. It manufactures and provide services in office supplies, technology, furniture, copy, print, cleaning and break-room. The company is based in United States of America.

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Future Enterprises Ltd. (formerly Future Retail Ltd., Pantaloon Retail India Ltd.) owns and operates a chain of retail stores under the brand name Big Baazar, Home Town, Ezone, Food Hall, Food Bazaar and Fashion at Big Bazaar. Its offers e-tailing, food, home and electronics, telecom and information technology, general merchandise, leisure and entertainment, wellness and beauty and books and music. The firm also offers loyalty programs and discount coupon for the users. The company was founded in 1987 and is based in Mumbai, Maharashtra with additional offices in Gujarat and Kolkata.