Energy-to-telecoms giant Reliance Industries Ltd has agreed to acquire Kishore Biyani-led Future Group’s retail, wholesale, logistics and warehousing businesses for a total of Rs 24,713 crore ($3.38 billion), including debt.
The acquisition makes a strong strategic fit into Reliance’s retail business, India’s biggest private-sector company said in a statement. The deal will also strengthen the position of RIL’s retail unit, which is already India’s biggest retailer.
Future Group said in a separate statement it will first merge five of its publicly listed units into Future Enterprises Ltd. These units are Future Retail Ltd, Future Lifestyle Fashions Ltd, Future Consumer Ltd, Future Supply Chains Solutions Ltd and Future Market Networks Ltd.
Subsequently, Mumbai-listed Future Enterprises will sell the retail and wholesale business to Reliance Retail and Fashion Lifestyle Ltd, a wholly owned subsidiary of Reliance Retail Ventures Ltd. These businesses include key formats such as Big Bazaar, fbb, Foodhall, Easyday, Nilgiris, Central and Brand Factory.
Future Enterprises will also sell the logistics and warehouse business to Reliance Retail Ventures.
The two Reliance companies will take over certain borrowings and current liabilities related to the business, Future Group said. The group didn't specify the borrowings or the breakup of the total amount. But the cash component of the deal is around Rs 8,453 crore ($1.15 billion). The remaining amount is likely to be debt on the books of Future Group companies.
Reliance will pay Rs 5,653.55 crore in cash to buy the retail and logistics businesses. It also plans to invest Rs 1,200 crore in Future Enterprises via a preferential issue of equity shares to acquire a 6.09% stake. Besides, it will invest Rs 400 crore via warrants which, upon conversion and payment of balance 75% (Rs 1,200 crore) of the issue price, will result in the Mukesh Ambani-led company acquiring another 7.05% of Future Enterprises.
Future Enterprises will retain the manufacturing and distribution of fast-moving consumer goods, fashion sourcing and manufacturing business, its insurance joint ventures with Italy’s Generali Group and joint ventures with NTC Mills.
The deal will expand Reliance’ brick-and-mortar retail empire—it already runs about 12,000 stores in over 6,700 cities and will add over 1,800 Future Retail stores to its network.
Reliance Retail Ventures carries on the consumer supply chain business and consumer retail business through its subsidiaries. It reported a consolidated turnover of Rs 162,936 crore and net profit of Rs 5,448 crore for the year ended March 31, 2020.
But for Biyani, widely hailed as the pioneer of modern retailing in India, the deal marks his exit from the retail business.
Future Retail, which has been adversely impacted due to the coronavirus-induced disruptions, was scrambling for cash after it defaulted on a Rs 100-crore ($14-million) repayment on its $500-million foreign currency bonds last month.
Future Group has piled on heavy debt over the years. Future Group’s listed entities had total debt of Rs 12,778 crore as of September 2019, up from Rs 10,951 crore six months before.
Meanwhile, RIL has been rapidly expanding its digital services business and has raised more than $20 billion for unit Jio Platforms Ltd since April from investors including Facebook Inc. and Google. Reliance also sold shares to existing shareholders worth $7 billion.
Last week, it purchased a majority stake in online pharmacy Netmeds for Rs 620 crore ($83 million) in cash. RIL is also reported to be evaluating the possibility of investing in the India operations of banned Chinese video platform TikTok.