industry

ET Exclusive: Samara-Future signed term sheet 2 months prior to RIL deal announcement


Mumbai: As early as June 30 last year, Amazon-backed private equity firm Samara Capital had signed a non-binding term sheet with Future Retail Ltd (FRL) that entailed a Rs 7,000 crore investment, reveal documents and correspondence between both sides. This was two months prior to Future Group announcing its Rs 24,713 crore deal with Reliance Retail Ventures Ltd at the end of August.

Future Group CEO Kishore Biyani told ET in a January interview that he received no help from Amazon despite reaching out eight times to help tide over a dire financial situation, implying he had no choice but to conclude a deal with Reliance. Amazon moved the Singapore International Arbitration Centre (SIAC) against the FRL-Reliance deal.

Amazon says Future Group breached a contract that gave the ecommerce giant right of first refusal and barred a sale to entities including Reliance. The matter is under litigation in the Delhi High Court.

The Future Group sent ET this response to queries: “We have no intention of engaging with the media about the questions posed, having particular regard to any slant and twist, whether perceived or real, about anything surrounding pending proceedings, however remote. It would be inappropriate on our part to do so.”

Amazon reiterated that it was open to a resolution of the matter.

The communications between Amazon and Future Group are part of submissions to the SIAC and the Delhi High Court and haven’t been previously reported. They have been reviewed by ET and appear to reveal detailed correspondence between Amazon-Samara and Future.

ALTERNATE-PLAN

As part of the term sheet, Samara was to acquire all of the small-format supermarket business for Rs 3,000-3,500 crore through a slump sale process and subsequently merge it with its current business to create India’s largest chain of supermarkets. Additionally, Samara was to also buy the large format (LF) and fashion business of Future Group. That transaction required FRL to slump sale the LF and fashion business to a subsidiary of FRL. The PE fund backed by Amazon was to invest Rs 4,000 crore to get a maximum 49% of the new subsidiary to comply with local laws. Foreign direct investment (FDI) in multi-brand retail is capped at 49%.

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Samara and Amazon had in September 2018 teamed up to acquire Aditya Birla Group’s supermarket chain More.

Soon after the term sheet was signed on July 1, FRL joint MD Rakesh Biyani sent the following WhatsAapp message to Amazon India head Amit Agarwal:

“If the restructuring options were implemented as per the said term sheet, FRL would continue to exist as an entity, with its subsidiary continuing to operate the hypermarket and apparel stores under the Big Bazaar and FBB brands,” Biyani said. “FRL would also receive consideration for sale of its supermarket business under the brand names Easy Day, Adhaar and Heritage; which could have been used by FRL to reduce its debt and ensure its continued survival.”

Amazon also wrote to FRL’s independent directors, Securities and Exchange Board of India (Sebi) chief Ajay Tyagi, the corporate affairs secretary as well as NSE and BSE officials among others on December 2, highlighting the chronology of events and the correspondence between the two sides.


PUTTING FRL BACK ON TRACK


The aforementioned term sheet was based on a detailed presentation made by FRL on May 13 last year, based on inputs from Rakesh Biyani and other members of the FRL team. They had sought Rs 5,500 crore to get FRL back on track. Salvaging the flagship by recapitalisation would have ensured a fresh lease of life. The subscale or loss-making businesses were to get sold to interested suitors.

As per the presentation, FRL faced a cash deficit of around Rs 5,000 crore till September 2020, largely on account of an asset liability mismatch (ALM). To mobilise Rs 5,000 crore, FRL sought to strengthen “corporate governance driven by board of directors” by appointing a new MD, CEO and CFO and further strengthening the board. The total fund-based debt as of March 31, 2020, stood at Rs 8,841 crore. There was an additional Rs 4,275 crore of debt outstanding, including letters of credit (LCs).

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Potential solutions included selling the smaller stores and the disposal of the food, grocery and health and personal care (HPC) business but not the fashion unit. This would also involve a Rs 5,500 crore financing package through a mix of debt and equity. FRL had sought feedback from its shareholders to pursue the asset-sale strategy.

As part of the financing package, a Rs 2,500-3,000 crore equity infusion was suggested, either through a rights issue or a select preferential allotment that would see Amazon (codenamed Alpha in documents), SSG Capital, PremjiInvest and TPG/Verlinvest and others each infuse Rs 750 crore. Amazon was to participate via an alternate investment fund (AIF) of SSG or PremjiInvest.

TPG declined to comment. Samara, SSG Capital and PremjiInvest didn’t respond to ET’s queries.


MULTIPLE DISCUSSIONS


Between the May presentation and June term sheet, several detailed email and WhatsApp exchanges took place between senior functionaries of Amazon and Future Group on the details of a potential investment by investors approved by Amazon. While Abhijeet Mazumdar, M&A and business development head of Amazon, and Amit Agarwal were leading the talks on behalf of the US retailer, Rakesh Biyani and group CFO Sanjay Jain were representing Future Group.

On June 24, Rakesh Biyani once again forwarded a note to Amazon discussing the contours of the commercial deal for FRL and the “various funding structures/options that could have been considered.” At least three separate tracks were thrashed out, documents reveal, outlining quantum of investments, commitment from Amazon itself as well as other investors like Samara that were “acceptable to Amazon.”

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Seven days later, on June 30, Biyani informed Agarwal that Samara needed a no-objection certificate from Amazon to execute the term sheet with FRL. Amazon gave the NoC.

Even 48 hours before the deal with Reliance was announced, Amazon’s Mazumdar had warned Kishore Biyani about “prior consent rights” with respect to any transaction involving FRL’s retail assets.

Amazon has been committed to an early resolution of the dispute with Future but had continued to be willing to support FRL even during the temporary financial challenges posed by Covid, a spokesperson told ET. He cited the company’s response to the Delhi High Court when asked if the two sides were open to mediation. Amazon had submitted the following, he said:

“It is more than willing to enter into a purposive dialogue which will be a substantive dialogue for resolving the present case and look at it as an opportunity for a well-structured solution,” the company told the court. “Since the matter pertains to business solutions, Amazon believes it would be appropriate for the purpose of expedition and clarity to have direct contact with parties concerned and make sincere efforts at striving towards a solution.”





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