American e-commerce giant Amazon may have got an upper hand in its recent deal with Indian retail major Future Group, feel analysts.
They said Amazon was testing waters before making any large-scale, long-term financial investment in Future Retail, which owns the large format stores of Big Bazaar and other format stores.
“There is a lot of ambiguity in the deal because none of the parties has clearly spelt out details. But going by the structure of the deal, it appears that Amazon has got an edge over the promoters of Future Group,” said Abhimanyu Sofat, head of research, IIFL Securities.
On Thursday, Amazon.com NV Investment Holding LLC announced plans to pick up 49% stake in Future Coupons, which is a Future Group company, controlled by industrialist Kishore Biyani and his family, for an unspecified amount.
Unlisted Future Coupons will hold a little more than 7% in Future Retail, the listed firm, after conversion of warrants. Thus, with 49% stake in Future Coupons, Amazon will indirectly hold 3% stake in Future Retail.
As part of the agreement, Amazon has been granted a call option. “This option allows Amazon to acquire all or part of the promoters’ shareholding in Future Retail and is exercisable between the third and tenth years, in certain circumstances, subject to applicable law,” Future Retail had told stock exchanges.
This was a form of protection Amazon was using to chart its future with Future Retail in India, analysts said.
They said since Amazon and the owners of Future Coupons have signed other clauses that place restrictions on Mr. Biyani selling shares to any other party, the latter has no option but to deal only with Amazon.
Mr. Biyani did not respond to a text message. Why Amazon picked up stake in Future Coupons, engaged in corporate gift cards, loyalty cards and reward cards primarily for corporate and institutional customers, instead of its actual target Future Retail, is not known.
While Future Group has not clarified on the transaction, Amazon said the investment would enhance its existing portfolio of investments in the payments landscape in India.
‘Big disappointment’
“It was believed that Amazon would pick up stake in Future Retail and [make] an open offer. In that sense, it is a big disappointment,” said Ambareesh Baliga, independent stock analyst. “Amazon is not going to invest in Future Retail in the near future either. That is why the stock corrected,” he added.
Analysts said the main trigger for Amazon buying stake in the Future Group firm was to counter the dominance of Walmart, which last year acquired Amazon’s rival Flipkart for $16 billion.
But Amazon has taken a guarded approach in the Indian market and has kept purse strings tight, they added.
