Future Group – How the Reliance buyout can help Future Group out of the mess

Future Group Future Group   How the Reliance buyout can help Future Group out of the mess

 

In the last few days, there have been a slew of reports about a likely deal where Reliance Retail could buy a controlling stake in Future Retail. Here is why the deal will add value to the Reliance group as well as bail out the Future Group.

Speed is the essence

While Reliance may not be the only suitor for Future Group, it is known for its penchant for speed in executing such deals. In the Jio Platforms monetization, RIL showed its capacity to close out mega deals in a short period of time. If RIL is really serious about this deal, it should not take too long for the deal to see the light of day. Among the various suitors, Reliance is the only potential buyer that expressed interest in buying into Future Retail apart from taking a stake in other group companies. That could be the differentiator.

Deal adds value to Reliance

For the Reliance group, the acquisition of Future Retail offers any easy access to a vast retail franchise. For example, RIL has 11,784 stores spread across 29 million square feet. The Future Retail deal will help Reliance add another 1500 stores with a combined area of 16 mn square feet across 400 cities. With the kind of trouble that Future group finds itself in today, RIL may be in a position to get hold of the retail franchise at an extremely attractive valuation. That will surely add value to its retail plans.

Dual advantage for Biyani

The first big advantage for Biyani stems from the fact that it saves him from the Rs.12,700 crore debt pile. Biyani family already has pledged its entire stake to banks for funding and it makes their position more vulnerable after the price crash. Cash infusion from a healthy balance sheet like RIL will be timely bail out for the Future group. But the bigger takeaway for Future group could be the digital platform that Reliance Retail will provide. Currently, Future Group does not have the resources to invest in deep digital technologies to take on the likes of Amazon and Wal-Mart. A deal with Reliance at this stage also makes the group future proof. That could be a bigger advantage for Future group as compared to the immediate benefit of debt reduction.

It did happen in India

Unlike his path-breaking book, Biyani may be disappointed by the turn of events. It may not be what Biyani had bargained for but it is still the best deal under the current circumstances. For Reliance, they put their cash stash to good use and get access to a ready-made retail franchise of Future group. In retrospect, where Biyani went wrong was in overestimating the potential of integrated shopping centers at a time when the trend was shifting the world over. For now, the RIL buyout could be the best deal for the Future Group! ©

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