Published: 12/5/2020
Happy Monday folks, this is Vedica with the update today. Instead of our regular programing I thought I'd use the update today to cover a story that we haven't talked about much in the newsletter - the fight between Amazon and Reliance.
➡️ As some / most of you probably know Amazon and Reliance (in proxy via Future Retail) are battling it out in the Delhi High Court, as they seek to tighten their grip on the country's e-commerce sector. For those who aren't very familiar with the story, here's a bit of background.
➡️ Last year Amazon bought a 49% stake in Future Coupons, an entity owned by India’s second largest retail chain, Future Retail. Reports suggest that the deal gave Amazon the first right to refusal on purchase of more stakes in Future Retail, included a non-compete clause, and the right to buy into the listed flagship FRL after a few years (probably with the aim of going through on the deal if if the government was to change the existing rules on foreign ownership of multi-brand retailers).
➡️ Then in August this year Reliance Retail said it has reached an agreement with Future Group to acquire the latter’s retail and wholesaler business, as well as its logistics and warehousing business, for $3.4 billion. The acquisition will give Reliance Retail one-third of the bricks-and-mortar retail stores. The pandemic ravaged Future Retail, which ran into a severe cash crunch as the country went into lockdown. Reliance turned out to be a white knight.
➡️ The battle is particularly interesting since it was rumoured a few months ago that Amazon was considering an investment in Reliance retail, but that might have taken a backseat for now. After news of the acquisition Amazon decided to take the matter to the Singapore International Arbitration Tribunal arguing that the RIL-Future deal is a violation of the agreement *it* has with Future Retail, and won an injunction that temporarily restrained Future Group from going ahead with the asset sale. In response, Future Group said the matter “will have to be tested" under Indian laws, petitioning the Delhi High Court to bar Amazon from meddling in its asset sale.
➡️ In the meantime the Competition Commision of India gave the Reliance acquisition the go-ahead. Not phased Amazon raised the injunction with the market regulator SEBI which is now asking the Bombay Stock Exchange to clarify why it cleared the share capital reorganization of Future Group despite unresolved complaints against the deal, including one by Amazon. [Quick note here that BSE CEO Aashishkumar Chauhan is a former Reliance man].
➡️ Quite honestly, what’s most interesting in this saga of both these companies trying to gain monopolistic power is how they are arguing their case. Amazon says that this spat is about India’s willingness to enforce business contracts and what this deal says about India’s ability to attract foreign investment. I have some sympathy for this view since the two parties had consented to settle their disputes through arbitration of the Singapore International Arbitration Centre’s rules.
➡️ Future Retail’s lawyers are leaning heavily into the the atmanirbhar zeitgeist arguing that Amazon is behaving “like the East India Company of the 21st century.” It’s a line of reasoning I have real distaste for, not only because as a historian I know this analogy to be wrong (the East India Company had an army to actually force the market open if you want to go down that route) but also because this appeal to nationalism is both dangerous and hypocritical.
➡️ Indian companies are too happy to play the nationalist card while also happily taking foreign investment (Reliance was ground zero for FDI this past year) and selling consumers foreign-made goods. To be clear, I think access to foreign capital and goods is a good thing, and businesses should pushing for more open markets with consistent regulation - and dispute resolution mechanisms- but that’s clearly a pipe dream.
Feedback & ❤️ always appreciated BONUS (Tweet of the day): https://twitter.com/nandiniv/status/1335793840033173505
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