Reliance's $3.4 Billion Deal With Future Group Temporarily Halted

The Delhi High Court has temporarily restrained Future Group from selling its retail assets to Reliance Industries Ltd, an interim win for Amazon which is opposing the deal with an eye to dominate a large and vital consumer market.

The court today ordered the Future Group and officials to ensure the status of the indebted Indian retailer's assets are maintained as is, putting on hold any further steps toward completing the $3.4 billion sale to billionaire Mukesh Ambani's Reliance conglomerate. Amazon alleges that the deal violates its own contract with Future Group and had filed an urgent petition last week seeking the suspension. The order can be challenged in a higher court.

The freeze bolsters the Jeff Bezos-led e-commerce giant, which had also urged the court to jail Future Group's founder and seize its assets for violating an October order from the Singapore arbitration court. The cash-strapped Indian retailer -- it risks bankruptcy if the deal with Reliance fails -- is caught between two of the world's richest men as they compete for dominance in India's estimated $1 trillion consumer retail market.

The court said it was of the prima facie view that the Singapore tribunal order, which asked Future Retail to not proceed with the deal, is enforceable in India.

A Future Group spokesperson declined to comment while Reliance Industries and Amazon India couldn't immediately comment.

Advantage Amazon

The stakes are high. For Amazon's Bezos, who has struggled to gain traction in China where local giants dominate the e-commerce sector, India with a population of 1.3 billion is the only other market of similar size that can boost his company's growth. Blocking Reliance, which is already the country's biggest brick-and-mortar retailer, is key. Acquiring Future's assets will double Reliance's retail footprint -- an advantage Amazon is not willing to cede.

The retailer's lawyer Darius Khambata told the court earlier in the day that Future Group wasn't willing to hold talks with Amazon to explore an amicable out-of-court settlement. Darius Khambata said Future does not want to complicate matters as it has sought regulatory approvals for the asset sale deal. Amazon's lawyer said the e-tailer was willing to talk, without giving up its rights in the case.

"The Singapore arbitration decision places Future Group in an unenviable position with no immediate resolution in sight," said Utkarsh Sinha, managing director at consultancy Bexley Advisors. A probable option now is bankruptcy court "where residual value could be unlocked, which in Future Group's case would be significant. The key question is who that value accrues to," he said.

Wilful Disobedience

Amazon, in its recent petition, alleged that Future had displayed deliberate and willful disobedience of the overseas arbitration court's order. The e-tailer owns a minority stake in one of Future Group's firms and has accused the latter of violating a contract when it agreed to the deal with Reliance.

The legal victory for Amazon comes after its letters to regulators seeking to stop approvals for the deal were unsuccessful. The antitrust regulator gave its approval in November. The stock exchanges earlier this month reported no adverse observations.

Future Retail Ltd, the group's flagship firm, missed a January 22 deadline to make an interest payment on its dollar bond and proposed to meet the obligation in a month. The court order threatens its ability to repay.