‘Future’ tense as Amazon puts stake buy on hold

E-commerce FDI norms cast a doubt on company’s offline retail plans, might affect More deal as well

Global online marketplace giant Amazon has indefinitely put on hold its plans to buy stake in Kishore Biyani’s Future Group, it is learnt.

According to sources in the know, Amazon is also reassessing the More retail chain stake buy, as it is at the moment unsure of India’s retail climate. The investment arm of Amazon had set aside close to $2 billion to invest in various retail chains, to expand its offline footprint.

Still assessing the damage caused by sudden change in foreign direct investment (FDI) in e-commerce norms, which forced it to overnight change its business strategy to become compliant, Amazon has decided to not continue with its retail plans via stake buys till it manages to get clarity from the government.

Last year Amazon had been on an overdrive to acquire stakes in offline retail firms and was holding talks with multiple players. From RP-SG’s food and grocery retail chain Spencer’s Retail to Future Group, Amazon was planning to buy minority stake in multiple players to increase its offline retail presence in the country.

In August last year, the firm had signed a term sheet with Future Group to invest close to $700 million for a 12-15 per cent stake in the retail giant. Sources said Future did not want the entire stake sale done for cash and was eyeing some shares of Amazon India which has a valuation of around $16 billion. The two sides had even started the negotiations on these finer points after the term sheet signing.

“There were talks happening for almost the whole of last year. Things were moving as planned and Amazon was to close the deal in the first quarter of 2019,” said a source close to Amazon.

“However, after the government suddenly changed FDI in e- commerce norms and did not give it the extension to February 1 deadline to become compliant, Amazon is unsure whether it makes sense spending close to $2 billion in buying stakes in various Indian retail chains. For now, it is in a waitand-watch mode and has ceased all talks of stake buy with Future Group,” said the source.

In September last year, it acquired 49 per cent stake in Aditya Birla Group’s Aditya Birla Retail, which runs stores under the More brand. The balance was picked up by home-grown private equity fund Samara Capital for around $580 million.

While Amazon has secured an approval from Competition Commission of India (CCI), no money has exchanged hands in the deal. “Amazon’s global team is assessing the various aspects of India operations. While they have got the CCI nod, there is no clarity on what the global team plans to decide next. Right now, its status quo,” added the source.

India operations have been a cause of worry for the Jeff Bezos-led technology giant. Amazon Chief Financial officer Brian Olsavsky indicated during the call with analysts after fourth- quarter results said the company is worried about India operations.

“There is much uncertainty as to what the impact of the government rule change is going to have on the e-commerce sector there. Our main issue and our main concern are trying to minimise the impact to our customers and sellers in India,” he had said.

Sources said that it was also planning to increase its stake in Shoppers Stop, from the present 5 per cent, but that plans has also been put on the back burner. Due to the new FDI in e-commerce rules, Shoppers Stop is no longer a seller on Amazon as it owns stakes in the retail chain.