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Future Retail Independent directors allege Amazon ‘s intent was to control Indian Retailer

Nov 14, 2021

Independent directors of Future Retail Ltd (FRL) have alleged that Amazon was earlier in talks to invest directly in the Indian retail company, and it changed its plan only after the government came up with the Press Note 2 rules which tightened norms for foreign e-commerce entities operating in India.

In a second letter sent to the Competition Commission of India (CCI) earlier this week, the directors said that Amazon never intended to invest in Future Coupons Pvt Ltd (FCPL) because of its “unique business model and strong growth potential” – the reasons which Amazon had presented to the competition regulator.

“Originally Amazon was to invest directly in FRL through the foreign portfolio investment (FPI) route,” the independent directors told CCI in their submission citing an email from Amazon’s lawyers to Future Group lawyers which had contained the draft of a shareholders agreement between the US company and Future Retail.

The directors have attached copies of internal emails between Amazon executives and their lawyers in the letter to CCI to buttress their claims. These emails were part of court filings by Amazon.

“Thereafter, due to Amazon’s concerns arising out of Press Note 2, the investment structure was changed to Amazon investing in a twin-entity investment structure i.e. Amazon would invest in FCPL and FCPL will acquire 9.82% of FRL,” they added.

The 160-page letter has quoted an email written by Rakesh Bakshi, Head, Legal and Assistant General Counsel, Amazon India to Jeff Bezos, CEO of Amazon dated July 19, 2019, to substantiate their claims.

In that email, Bakshi had written to Bezos that, ‘Due to the recent PN2 restrictions under Indian foreign investment laws, we will use a “twin-entity Investment” structure to invest in Future Retail.’

Subsequently, Amazon invested Rs 1431 crore to buy 49 percent in Future Coupons, which in turn held 9.8 percent in Future Retail.

In the process, Amazon also acquired certain veto rights over Future Retail.

For this deal, Amazon has sought and received approval from CCI for making an investment in the digital loyalty cards, gifting and couponing of FCPL.

However, as the first letter from Future Retail’s independent directors to CCI alleged, it misled the regulator saying that its rights over Future Retail were only ‘protective rights. ‘ Had it disclosed its intent to acquire control over Future Retail, the deal would have fallen foul of FDI laws, and would also have prompted an open offer under SEBI rules.That’s not all.

Bakshi’s email to Bezos also said that Amazon was paying a 25 percent premium over the regulatory price of the shares of Future Retail (if it had acquired directly) because of strategic rights and call option provided to the US company.

“The number of equity shares of Future Retail to be held by Future Coupons has been calculated such that Amazon can indirectly hold the same number of shares of Future Retail that Amazon would have acquired if Amazon had directly invested Rs 14 billion in Future Retail at a price per share representing a 25% premium on the minimum regulatory price prescribed for issuance of fresh shares of a listed entity under Indian law,” the document reads.

“There is no valuation ascribed or carried for FCPL business per se. FCPL is just used as a vehicle for an investment in FRL,” argued the independent directors urging CCI to revoke its okay to the deal between Amazon and Future Coupons.

Moneycontrol has reached out to Amazon seeking comment. This story will be updated when it responds.

On November 8, Moneycontrol had reported that the independent directors had requested CCI to revoke the approval it had given to the Amazon-Future Coupons (FCPL) deal in November 2019.This is the second such letter in less than a week that accuses the American e-commerce giant of concealing information and requests CCI to revoke the nod it gave to the Amazon-Future Coupons Private Ltd (FCPL) deal in November 2019.These revelations come at a time when Amazon and Future Group have been engaged in a rough battle in Indian courts after Future agreed to sell its assets to Mukesh Ambani’s Reliance Group on a slump basis for Rs 24,500 crore last year.

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