The much anticipated deal between Mukesh Ambani controlled Reliance Retail and Kishore Biyani’s Future Enterprises may get its final nod tomorrow as the board of the later will meet on Saturay to seal the deal. Most likely it would be an all cash deal that will see Reliance Retail take on Future group’s debt and liabilities, and pick up a minority stake in the latter’s FMCG arm.
As per the deal terms mentioned in the report, the transaction is valued at about Rs 29,000-Rs 30,000 crore and Future Group will merge five listed units across grocery, apparel, supply chain and the consumer business into Future Enterprises Ltd (FEL), which currently houses the group’s retail back-end infrastructure. FEL will then hive off all retail assets and sell them to RIL as a single unit, the publication reported citing two unnaned sources having knowledge of the deal.
“Reliance will pay about Rs 13,000 crore to Future Group for clearing debt, another Rs 7,000 crore for its liabilities (including payments to landlords and vendors), and Rs 6,000-7,000 crore to the promoter group”. Further, Reliance will pick up 14-16% stake in Future Enterprises for Rs 3,000 crore through a preferential allotment by the latter.
Future Enterprises will house the residual businesses, primarily the FMCG products of Future Consumer, textile mills and the insurance arm.
FEL will have a long-term supply agreement with Reliance Retail for apparel and groceries.
Worth mentioning here is that Future Group shares rallied on Thursday anticipating a final deal between Reliance Retail and FEL. Future Retail share rose 10% on the BSE while, Future Consumer, Future Enterprise and Future lifestyle surged 5% each.
Analysts say for Reliance Retail the deal would mean significant share in the groceries and apparel segments, where it is yet to become a market leader. Reliance Retail had clocked a revenue of Rs 1.63 lakh crore in the previous fiscal. The deal with future group will help RIL control more than a third of India’s organised retail market.
This will make Reliance the market leader by a long mile, putting pressure on rivals. In telecom and digital, it is hard to displace the market leader, but in retail, higher store count doesn’t guarantee success. Retail in India is still very fragmented or local, and having more successful stores matter instead of an absolute number of outlets.
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