Reliance may offer up to 40% in retail arm to Amazon

$20-bn deal, if successful, will be biggest in India

Billionaire Mukesh Ambani’s Reliance Industries (RIL) is offering to sell a roughly $20 billion stake in its retail business to Amazon.com Inc, according to a person with knowledge of the matter.

Amazon has held discussions about investing in the conglomerate’s Reliance Retail Ventures and has expressed interest in negotiating a potential transaction, the person said. Mumbaibased RIL is willing to sell as much as a 40 per cent stake in the subsidiary to Amazon, the person said, asking not to be identified because the information is private.

A deal, if successful, would not only create a retail behemoth in India but will also turn Jeff Bezos and Asia’s richest man from rivals into allies in one of the fastest-growing consumer markets in the world. At $20 billion, the deal would be the biggest ever in India as well as for Amazon, according to data compiled by Bloomberg.

In India, where a lot of people still shop in tiny street-corner stores, the deal could be Amazon’s way of acknowledging that it needs a locally-entrenched partner with a strong on-theground presence. For Amazon, Reliance would provide a brick-and-mortar component to its ambitions in a country where online purchasing still accounts for a minuscule share of an estimated $1 trillion retail market.

Highly complementary

“The deal would be a highly complementary one that builds on the strengths of either side,” said Utkarsh Sinha, managing director at Bexley Advisors in Mumbai. “Amazon comes with the might of its warehousing capabilities and the ability to streamline supply chains and sweat assets for maximum returns.”

Amazon hasn’t made any final decision on the size of its potential investment, and talks could still fall apart, the person said. A representative for Amazon declined to comment. “As a policy, we do not comment on media speculation and rumors,” said a Reliance spokesman.

“Our company evaluates various opportunities on an ongoing basis. We have made and will continue to make necessary disclosures in compliance with our obligations.”

Any deal between the two would also bolster the partnership that was indirectly forged last month through an unrelated purchase by Ambani’s group when it bought assets of indebted rival Future Group. Amazon had invested in one of Future’s unlisted firms last year and later expanded the alliance.

India playbook

Such an investment by Amazon also means the titan is altering its playbook after learning from past failures in the region. Earlier, the online juggernaut’s strategy of going it alone in China flopped in the face of competition from domestic giants including Alibaba Group and Jd.com.

For Reliance, the deal will give further credence to Ambani’s ambitions to create an e-commerce giant for India akin to Alibaba. Reliance Retail already lured about $1 billion from Silver Lake Partners, in a deal that valued the firm at about $57 billion. The US private equity firm KKR & Co is in advanced talks to invest at least $1 billion, and L Catterton is also considering investing, Bloomberg reported.

Pivot away

For the Indian business mogul — who has identified technology and retail as future growth areas — the investments would further help to pivot the group away from the energy business he inherited from his father, who died in 2002.

While Ambani is keen to sell stakes to marquee foreign investors, he’s actively acquiring local retail assets to bolster his leadership position.

Besides the Future Group purchase, Reliance is in negotiations to acquire smaller firms such as Urban Ladder, an online furniture seller and Zivame, a lingerie maker, sources said last month.

A stake stale to Amazon, however, may need to clear antitrust hurdles. A collaboration between the world’s largest online retailer with a strong presence in India and the country’s top offline retailer could lead to market concentration risks that may invite regulatory scrutiny.