Both sides are drafting a call and put option in their share purchase agreement that will allow Amazon to call for Biyani’s stake in flagship Future Retail Limited (FRL) over the long term, possibly as much as 8-10 years, subject to Indian laws. FRL operates all food and grocery stores such as Big Bazaar, Easy Day and Nilgiris.
Biyani and Amazon are close to finalising the first leg of their agreement wherein the Seattle-headquartered retailer will buy up to 9.5% stake in FRL through the foreign portfolio investor (FPI) route. That announcement got delayed and is now expected in December.
Both Biyani and an Amazon spokesperson said they don’t comment on speculation.
As promoters, Biyani and his family members own 46.51% of the company, of which 40.3% is pledged as per September 2018 filings. A person familiar with the discussions said the 9.5% stake will give a toehold to Amazon in FRL, but what is more important for the online retail giant is the option of taking over the company in the future.
“Amazon is betting that with gradual FDI relaxation in food processing and single-brand retail over time the current freeze will be removed,” said an official on condition of anonymity as the discussions are in private domain. “Meanwhile, a clear realignment involving global players is happening in Indian retail and Biyani too would want to capitalise on that.”
Amazon picked up a 5% shareholding in Shoppers Stop last year. Along with Samara Capital, it recently acquired a stake in More supermarket chain, which was previously owned by the Aditya Birla Group. It has also been in discussions, as ETreported earlier, to buy a stake in Sanjiv Goenka-owned Spencer’s Retail.
Amazon, which runs a large online business in India, has been looking at buying stakes in local brick-and-mortar stores.
Its big American offline rival, Walmart, has gone the opposite way by acquiring Flipkart, India’s largest ecommerce company.
The current market cap of FRL is Rs 26, 648.69 crore. Amazon is likely to give a significant “control” premium of around 25-30% for their right to call upon the shares, said sources in the know, adding that the granularities of the agreement are being worked on.
Suhail Nathani, managing partner of ELP, a law firm, said in the case of listed marketable securities, put/call options (in shareholders’ agreements) are governed by markets regulator the Securities and Exchange Board of India’s (Sebi’s) circular of October 2013 and the Reserve Bank of India’s foreign exchange regulations. “It is further subject to Sebi’s block deal/bulk norms and Sebi takeover regulations (based on the percentage of shares being bought). As per RBI norms, if a foreigner is buying from an Indian person, then the price at which the shares will be sold by the Indian person would need to be at or higher than the fair market value prevalent at the time of the sale as per Sebi pricing norms,” he said.