E-commerce giant Amazon is opposing a $3.3 billion deal signed by Reliance Industries to acquire brick-and-mortar retail chain Future Retail in India.
Amazon, owned by Jeff Bezos, filed a complaint to the Singapore International Arbitration Centre (SIAC) to challenge the deal between Mukesh Ambani's Reliance Industries and Future Group over the acquisition of Future Retail and several other assets.
Analysts said the battle is focused on strategic access to a network of popular grocery stores and retail shops in India, which both Amazon and Reliance want to either have for themselves or prevent the other from acquiring.
Counterpoint Research analyst Tarun Pathak said: "If someone backs down, it will give the impression that one has lost and the other has won, when the fight has just started."
India's e-commerce industry
Currently, Amazon holds 31.2% market share in the country's e-commerce space, a little behind Walmart-owned Flipkart's 31.9%, based on a recent report from market research firm Forrester.
However, Ambani has been boosting JioMart as part of the conglomerate's plan to upend the market. At the center of the battle between the two retail giants is Future Retail, which includes brands such as Big Bazaar, a popular hypermarket chain in India.
In August 2019, Amazon decided to invest in a Future Group entity and based on stock exchange filings, it has around 4.8% stake in Future Retail as of September 30, 2020. Under this deal, Amazon has the right of first refusal to acquire more shares in Future Retail.
The onset of the coronavirus pandemic took a toll on Future Retail's business operations and its credit rating fell after it missed a bond payment. Fitch Ratings downgraded Future Retail's rating by two notches to C in July, indicating that the company was "near default."
In August, Reliance and Future Group announced the deal. At that time, Future Group chief executive officer (CEO) Kishore Biyani said the deal enabled Future Group to "achieve a holistic solution to the challenges that have been caused by Covid and the macro economic environment."
Amazon's complaint
Forrester analyst Satish Meena mentioned: "Everyone knew Amazon had a stake in Future Retail, and the deal didn't mention what would happen to Amazon's stake."
Ashish Kabra, a lawyer who heads the International Dispute Resolution & Investigations Practice for Nishith Desai Associates in Singapore, explained that Indian firms and foreign companies operating in India often agree to settle disputes in Singapore because "it's a neutral jurisdiction with high integrity and international standards."
In its filing, Amazon pointed out that its 2019 deal with Future Group included a non-compete clause, which listed 30 restricted parties with which Future Retail and Future Group could not do business, including Reliance.
A person familiar with Amazon's perspective said: "The key question really is what's the validity of contracts if you just ignore them. Are companies just going to ignore contracts and do what they please?"
Amazon gained a small win when an SIAC emergency arbitrator ordered a temporary halt on Future Group's deal with Reliance. An Amazon spokesperson said: "We welcome the award of the Emergency Arbitrator. We are grateful for the order which grants all the reliefs that were sought."
In response, Future Group argued that if the deal with Reliance falls through, its retail unit will be forcefully liquidated and 29,000 jobs will be lost.
However, the arbiter pointed out that "economic hardship alone is not a legal ground for disregarding legal obligations."
