The two takeover bids in different parts of the world stand out as a study of contrast. In the US, Elon Musk is set to snap Twitter at a market premium. While the deal deserves scrutiny, its fortunes could see a revival once Lakshya is captured. In India, Future Group’s retail assets have been contested several times through courts and commissions, and now our pioneers of large format retailing are on the verge of bankruptcy with bleak prospects. What does this explain? As operator of Big Bazaar supermarkets, Future was battered by threats such as e-commerce even before Covid, but Amazon could not defend itself directly as foreign control of multi-brand retailers was barred by the policy. Its indirect buyout in 2019 was through a multi-pronged deal, the complexity of which landed it in trouble after Reliance nearly made an offer. 25,000 crores for a complete buyout, a juicy offer that Future probably couldn’t refuse. Turned down, Amazon sued for breach of contract, claiming a veto over such sales, even as its settlement came under a lens for an alleged ulterior motive. Last week, after more than two years in contention, the business slipped from the defender’s grasp.
Last Thursday, armed with the expected clout, Future’s unpaid but secured creditors chose to reject Reliance’s offer, a rejection that is now set to push group defaulters into bankruptcy. On Saturday, Reliance, which had reportedly cut cash on offer for lenders, announced its withdrawal from the field. As for Amazon, it stands to shut itself out completely should India’s bankruptcy code kick in, as it could be excluded from making a resolution bid due to both a foreign firm and a ‘related party’ (Given its 2019 stake in a group holding firm). This week, Amazon said it would not drop its arbitration case against Future in Singapore, although it was unclear what it could win if Future’s commitments were scrapped. What could be saved from Future Retail and its associated firms is even more alarming, now that the group’s brand has lost its appeal and lease-payment defaults have made it lose a large chunk of its outlet reach. As Future’s stores were pinned on the map to optimize market coverage, its well-curated network was seen as a prized catch. However, in February and March, Reliance reportedly took over around 950 of them through local realty deals with its lessees. With most of the Future’s customer catchment zone under its belt, there will be little left to pursue it.
While future shareholders should feel disheartened by this turn of events, the saga shows why conflict resolution needs to be simplified to resolve insolvency cases for India. It also reveals the obvious cost of more coined rules. Policy-level clarity on whether it is okay for people to buy groceries at foreign-owned stores would not only have allowed an open competition of bids, but would have been better while giving the retailer a fair chance of recovery. There would also have been a swift acquisition by the suitors. Buyouts, after all, are meant to increase value as buyers move through a fresh run of businesses, but the potential for price erosion is high, while complex regulations prolong timelines by posing legal conundrums. In the case of Future, our regulator of rivalry actually revoked its ratification of the Amazon treaty in retrospect; It was such a gray call. If we want a truly dynamic market for assets, reforms are imperative, which efficiently turns them into the hands that sweat them best to generate returns, jobs and widespread prosperity.