Future Retail's Independent Directors Speak Up Against Amazon

Future Retail Ltd.'s independent directors have written to the competition regulator urging it to revoke the approval granted for Amazon's investment in Future Coupons Pvt.

Future Retail's board was not aware that strategic rights over the company were being acquired by Amazon through its investment in Future Coupons, they said in a letter to the Competition Commission of India.

Amazon.com NV Investment Holdings LLC, according to the independent directors, concealed and misrepresented facts to the CCI. It obtained the regulator's approval for investing in FCPL and not on the basis that it was acquiring strategic, material and special rights over FRL, the letter disclosed to the stock exchanges said.

Pointing to the CCI's order for Amazon-FCPL transaction, the independent directors state the permission granted by the regulator stands revoked if, at any time, the information provided by the acquirer is found to be incorrect.

Future Retail's independent directors said the CCI's revocation will help them discharge their fiduciary duties towards FRL's public shareholders, lenders and creditors. "We wish to reiterate that our duty is towards the company and not the promoters per se."

Much of what the independent directors now said has been argued by Future Retail's counsel in courts.

Their letter details the agreements that were signed in 2019, Amazon's representations to the CCI and how they are in complete contrast to its stand before courts and the arbitral tribunal in Singapore.

In 2019, Amazon had invested in Future Group by acquiring a 49% stake in Future Coupons — a promoter entity of Future Retail. According to the shareholders’ agreement, Amazon was granted a call option allowing it to acquire all or part of the promoters’ shareholding in Future Retail, which could be exercised between the third and tenth years in certain circumstances subject to applicable law.

At that time, FRL, FCPL and Kishore Biyani companies also entered into a shareholders’ agreement. Under this, FRL was required to obtain the prior consent of FCPL for certain key matters including disposal of its retail business and assets to any third party and particularly to certain restricted persons including Mukesh Ambani's Reliance group.

FRL's independent directors now said FRL-FCPL shareholders' agreement was disclosed in a footnote to the CCI. And that Amazon has not notified for approval of the CCI for:

• The FRL-FCPL shareholders' agreement as one of the interconnected steps/ transactions in the combination.

• The rights of Amazon (through FCPL shareholders' agreement) over key matters of FRL were strategic in nature.

• Investment in FCPL was made only for the purpose of obtaining the strategic rights in FRL.

• Commercial agreements between Amazon India and FRL.

When queried by the regulator if Amazon's FCPL was economic or strategic, the U.S. ecommerce major had pointed to FCPL's unique business model of gift and loyalty cards business and its strong growth potential. As per the independent directors' letter, Amazon had assured the CCI at the time to say:

• Rights over FRL were only investment protection rights. Amazon specifically replied that these rights over FRL would not be exercised by it directly and would only be exercised by FCPL as a shareholder of FRL to protect the investment made in FCPL by Amazon and Kishore Biyani companies.

• Rights over FRL have been negotiated between FCPL, FRL and Kishore Biyani companies independent of the investment by Amazon in FCPL and with a view to unlock value for FCPL.

But now, Amazon is claiming that its investment was only to obtain the special and material strategic rights over FRL’s business and retail assets. FRL’s assets and business represented a significant and irreplaceable asset to Amazon, the independent directors said.

If this intent was made clear to the CCI, they said, the regulator would've written to the Securities and Exchange Board of India, Department of Economic Affairs and the Enforcement Directorate prior to granting its approval. As a consequence of the reference by the competition regulator, SEBI would've pointed out that transaction triggers an open offer by Amazon. And the DEA and ED would've said prior government approval is required since Amazon is a foreign entity.

Finally, the letter said, Amazon was to invest directly in FRL as a "foreign portfolio investor". But FDI rules for e-commerce prohibited Amazon from selling Future Retail's goods on its online platform if it became a shareholder. The transaction was then modified to the present structure where Amazon would invest 49% in FCPL and FCPL would invest in FRL.

The FCPL SHA wasn't approved by them nor has it been incorporated in Future Retail's articles of association, the letter said.

The independent directors have urged the CCI to confirm the revocation of its approval in the interest of Future Retail's employees, shareholders and lenders.