Companies

‘I feel overwhelmed, content,’ Kishore Biyani tells Future group execs after deal with RIL

Forum Gandhi Mumbai | Updated on August 30, 2020

Kishore Biyani

₹25,000-cr deal was done through several online meetings over four months

After signing the ₹25,000-crore deal to sell Future group’s retail business to Mukesh Ambani’s Reliance Retail, Kishore Biyani told senior executives in his company that he felt overwhelmed due to the support of his team and content to have built such a valuable company.

Even though Biyani founded and built Future Retail from scratch since 1987, he showed no emotions at having to sell off his company. “Biyani was completely practical about it. He wasn't emotional. He still has the mettle to start over again and get his other companies going,” said a senior executive close to the man who brought modern retail to India. “If it weren't for the mounting debt, the company’s scale was to speak for its own self. So, for the next few months until the deal is completed, Biyani has asked his leadership team to focus on bringing the business back on its feet,” the executive added.

On Saturday, Reliance Retail Ventures Ltd (RRVL) announced plans to acquire Future Group’s retail and wholesale business, and logistics and warehousing business for ₹24,713 crore. The acquisition is as a going concern on a slump sale basis, RRVL said in a statement. As part of the deal, the retail and wholesale undertaking businesses are being transferred to Reliance Retail and Fashion Lifestyle Ltd (RRFLL), a wholly-owned subsidiary of RRVL.

Further, the logistics and warehousing undertaking is being transferred to RRVL, and RRFLL also proposes to invest about ₹1,200 crore in the preferential issue of equity shares of FEL to acquire 6.09 per cent of post-merger equity. Another ₹400 crore would be invested in a preferential issue of equity warrants which, upon conversion and payment of balance 75 per cent of the issue price, will result in RRFLL acquiring another 7.05 per cent of FEL.

According to those who were close to deal-making, talks between the two sides had begun in April after it was clear that Future had to get external funding to say afloat. There were no physical meeting between Biyani and Ambani. All discussions were held through videocalls. But negotiations were not smooth. “Many times we felt that the deal was not going to go through because of the debt and Amazon’s stake. Various deal structures and structuring were explored before the final one was announced,” said a person close to the negotiations.

Consent is still needed from all the lenders and strategic partners. “Post the deal, the lenders will get at least some money back. However, if the lenders do not agree to it, they will get nothing because Future Group does not have a lot of assets but has a huge debt,” the person said.

‘Consolidation in retail’

However, analysts expect Biyani to bounce back. Susil S Dungarwal, Chief Mall Mechanic, Beyond Squarefeet, a mall advisory firm, said, “He will bounce back because retail is his passion. Things were not good with the Future Group for the last 4-5 years but the Covid-19 pandemic, which hit about six months ago, was the last nail in the coffin. Otherwise, he would have survived a couple more years and innovated to tide over the crisis,”

Lloyd Mathias, Business Strategist and an angel investor, said the deal signals real consolidation in the $700-billion Indian retail market. “This will bring in a whole lot of synergies starting from Future’s strong play in the grocery segment, especially in tier-2 markets, with Big Bazaar, warehousing and logistics besides sourcing synergies. This deal will help grow the organised retail segment in India currently pegged at 5 per cent of the overall retail market,” he said.

Whether Biyani makes a comeback to retail or not, Future Retail gets a chance to stay in business as the RIL deal will keep it away from loan defaults and potential IBC proceedings. For Reliance Retail, this will consolidate its dominance in the retail sector in India — with over 13,000 retail outlets — and together with its strong play in telecommunications, it will be able to establish an omni-channel stranglehold ahead of potential global players like Amazon and Walmart, said Mathias

(With inputs from Rajesh Kurup)

Published on August 30, 2020

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