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The Dangerous Game Future Retail's Independent Directors Are Playing

The match that Future Retail’s independent directors have lit under Amazon may burn their own house down, writes Menaka Doshi.

A shopper walks through an aisle displaying personal care goods at a Big Bazaar hypermarket, operated by Future Retail Ltd., in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)
A shopper walks through an aisle displaying personal care goods at a Big Bazaar hypermarket, operated by Future Retail Ltd., in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

The match that Future Retail’s independent directors have lit under Amazon may burn their own house down.

In two letters over one week, the directors have alleged that Amazon did indirectly what it could not do directly. That the American e-commerce giant wanted to invest in Future Retail Ltd., the company that owns Big Bazaar and EasyDay Club and FBB, etc., but India's foreign direct investment policy complicated matters. So Amazon did the next best thing. Invest in Future Coupons Pvt., the private promoter of FRL, negotiate an agreement to get rights over FRL—negative rights that fall just short of control—and is now attempting to use those rights to block the sale of FRL's assets to Reliance Retail Ventures Ltd. In the process, Amazon violated FDI policy and SEBI's Takeover Regulations and misled competition regulator CCI.

To make their case, the independent directors have also shared a damming email, from Amazon's India legal head Rakesh Bakshi to Chief Executive Officer Jeff Bezos, that almost gives the game away.

Bravo. Imagine that. Three independent directors standing up for the law, for the company's stakeholders who deserve to know the truth.

Bah.

If anything, the directors have only exposed the sham that India's FDI policy has been. For decades.

Where obtuse ownership restrictions create mazes that practiced consultants and lawyers have long built escape hatches into. Promoters, managements, and boards pretend all is kosher... only till they need the money. And government after government conveniently looks the other way. Some even totting up the FDI numbers to advertise their investor-friendly ways.

When it stops suiting them—promoters or governments—the escape hatches become weapons, the foreign investor a modern version of the marauding East India Company. How dare they....how dare they enter our country and cheat us like this. How dare they.

This story played out over two decades ago with Rupert Murdoch and Star TV.

It's now playing out with Amazon and Future Retail.

Media and retail have been two sectors that have witnessed some of the most innovative deal structuring to work around FDI policy restrictions. Yup, workaround is how Kishore Biyani, founder of the Future Group, himself described it in an interview in Feb. 2019.

The Workaround

On Aug. 12, 2019, FRL signed a shareholders' agreement with its parent FCPL and promoter, the Biyanis, giving them certain rights.

10 days later, FCPL sold a 49% stake to Amazon and granted it some rights over promoter shareholding in FRL.

These were disclosed by FRL itself to the stock exchanges.

Here's what the Aug. 22 filing said – "The Promoters (Biyanis and FCPL) have also agreed to certain share transfer restrictions on their shares in the Company (FRL) for same tenure, including restrictions to not transfer shares to specified persons, a right of first offer in favour of Amazon, all of which are subject to mutually agreed exceptions (such as liquidity allowances and affiliate transfers)."

So it's surprising, that FRL's independent directors claim they did not know the transactions were connected, and that the board was not aware that Amazon had acquired strategic rights over FRL through FCPL.

Did they truly believe that Amazon had a crush on Coupons?

C'mon.

Nobody swallowed that line. Read this BQ story or any others like it to know that it was clear to everyone that Amazon's interest was in Future Retail.

Yet, a board with a former CEO of an Indian media giant, a chartered accountant with over 30 years of experience across real estate to apparel, a seasoned private equity investor, an international investment banker and a veteran banker had no idea what was going on?

Opinion
Future Retail’s Independent Directors Say They’ve Been ‘Misled’. By Whom?

Who's Their Real Target?

Okay. Let's assume for a moment the independent directors were genuinely unaware or misinformed or incapable of comprehending the true nature of events—the question then is who kept them (as well as the Government of India, SEBI and CCI, as they allege) in the dark?

Kishore Biyani, the company chairman and group promoter who signed the shareholder agreements?

Rakesh Biyani, the company's managing director and also a member of the promoter group?

Future Group’s lawyers that facilitated the deals?

Or the external party in all this—Amazon?

Wittingly, unwittingly the independent directors' allegations imply that the Biyanis did all the deal-making but didn't share the full picture with their board colleagues.

That the three law firms involved in the transactions—Trilegal, AZB & Partners and Cyril Amarchand Mangaldas—permitted deals with patent illegalities.

That government officials and regulators were incompetent or complicit to have missed what most business journalists and analysts cottoned on to quickly.

And, that it took two years after the deals with Amazon, 16 months after the deal with Reliance Retail and one year after the litigation with Amazon for the independent directors themselves to fully understand what's been going on.

Their goal may be to burn Amazon but the fire may consume their home as well.

Menaka Doshi is Managing Editor at BloombergQuint.