Reliance Retail – Future Group Deal
Future group to sell its retail, wholesale, logistic and warehousing assets to Reliance Industries retail arm Reliance Retail (RRVL) at a value of Rs. 24,713 crore.
The transfer of assets and liabilities will take place after a reorganization at Future Group in which all key Future group companies such as Future Retail, Future Lifestyle Fashions, Future Consumers, Future Supply Chain Solutions and Future Market Networks will be first merged into Future Enterprises Limited.
Deal structure is on slump sale basis and there is lack of clarity in deal transaction details between Future Enterprises and Reliance Retail. Thereby it is premature to optimism over the merger between these two entities. It will be cleared in the future.
Considering the SWAP deal, Future Enterprise is paying high premium to its subsidiaries for shares purchase, however the deal payment of Rs. 24,713 crore which the Future Enterprise will receive from Reliance Retail is below the market expectations of Rs. 29,000 – Rs. 30,000 crore.
While the deal may give traders an arbitrage opportunity if price movement remains positive in near term which is highly uncertain thus investors are recommended to avoid investment in Future Enterprise or any Future Group subsidiaries as there is lack of clarity of complete deal structure.
As 14 entities are already wholly owned subsidiary of FEL only 5 entities shall be merged into FEL. The swap-ratio calculation of the transaction is explained below: (Note: *FEL CMP is Rs. 17.2)
• For every 10 FCl shares 9 shares of FEL will be issued
• For every 10 FLFL shares 116 shares of FEL will be issued
• For every 10 FMNL shares 18 shares will be issued
• For every 10 FRL shares 101 shares of FEL will be issued
• For every 10 FSCSL shares 131 shares will be issued
Shareholders of Reliance Industries are likely to remain the key beneficiary post the deal as the deal price stood Rs. 24,713 cr against the market expectation of Rs. 29k-30k cr. Further RRFLL (a wholly owned subsidiary of RRVL) to invest Rs. 1,200 crs in preferential issue of equity shares (for FEL 6.09% stake) and Rs. 400 cr in a preferential issue of warrants which will be equity convertible post 75% balance payment (result into acquisition of 7.05% stake).
RRVL will now have access to close to 1,800 stores across Future Group’s Big Bazaar – Future Retail, EASYDAY, Foodhall India Future Group which are spread in over 420 cities in India.