Kishore Biyani-led Future group today agreed to merge its retail business with rival Bharti Retail in an all-stock deal worth Rs 750 crore to create one of the biggest supermarket chains with Rs 15,000 crore turnover.
This is the second major consolidation exercise within two days in the fast-growing Indian retail sector, after Aditya Birla Group yesterday announced merging all its apparel retail businesses into a single entity.
The two-tier deal between Future and Bharti groups also involves merger of their respective retail infrastructure business into Future Retail — creating two separate companies for the front-end retail and infrastructure activities.
Future Group promoters would hold 46-47 per cent stake in each of the two companies, while Bharti Retail will have about 15 per cent holding in each of them.
As part of the deal, Bharti Retail will get shares worth Rs 500 crore immediately, while shares worth another Rs 250 crore would be converted at a later date.
“We are merging our retail businesses to create two separate companies … The combined retail entity will have a total turnover of Rs 15,000 crore,” Future Group CEO Kishore Biyani told reporters here.
Bharti will have one member on each of the two new companies. The new retail entity will have one of the largest networks in India with 570 stores across 243 cities.
Bharti’s Easyday chain of stores and Future’s Big Bazaar stores will continue to operate, Biyani said.
Stating that Bharti is not exiting from retail business, Bharti Enterprise Vice Chairman Rajan Bharti Mittal said: “We are only merging. This was needed for faster growth. It is a strategic fit for both the companies.”
Earlier in 2013, Bharti and global giant Wal-Mart had terminated their partnership, including a franchise agreement in retail business, pursuant to which the US-based retailer acquired full control of their wholesale cash and carry business joint venture.
While policy allows for 51 per cent FDI in multi-brand retail sector, the foreign retailers have been cold to set up shops in India due to political backlash.
The Future-Bharti deal comes a day after Birla Group merged its apparel businesses into a Rs 5,290 crore entity named Aditya Birla Fashion and Retail (ABFRL), which will be the largest pure-play fashion lifestyle company in India.
Biyani said they plan to open 4,000 smaller format stores by 2021, up from the total of about 570 stores now.
Following the announcement, Future Retail shares soared 12.06 per cent to close at Rs 129.65 on BSE. Shares of the two listed Birla group firms also soared higher today.
Although Bharti Retail has zero debts, the new combined retail entity will have Rs 1,200 crore debt, while the combined infrastructure company will have Rs 3,500 crore debt.
When asked about new stores, Biyani said all new small format stores in North India will be opened under Easyday brand. In South and West India, stores will be opened under Nilgiri and KB’s brand.
Bharti Group has been looking out for partners for a full-fledged retail play after parting ways with erstwhile cash and carry partner Walmart in 2013. Bharti Retail runs over 210 Easyday stores across different formats in India, mostly concentrated in the northern region.
Future Group also has been making move to consolidate its business after selling majority stake in Pantaloons to Aditya Birla Retail in 2012. It has a chain under different formats, including hypermarkets under Big Bazaar and supermarkets under Food Bazaar brand.
Biyani said the merger between Future and Bharti Retail is a win-win situation.
“There is no overlap in our stores presence. We did not have the smaller format stores that Bharti Retail has,” he said, adding the combined entity would have a total of 18.5 million sq ft of retail space.
As part of the deal, Bharti Retail will issue one equity share of Rs 2 each for every share of Rs 2 held in Future Retail in consideration of the merger of Future’s retail business into it.
On the other hand, Future Retail will issue one fully paid up equity share of Rs 2 each to Bharti Retail shareholders for every share of Rs 2 held in it in relation to the merger of the retail infrastructure business.
The equity shares of Bharti Retail issued to shareholders of Future Retail will be listed on stock exchanges.
As part of the deal agreed between the two firms, Bharti Retail’s existing holders of optionally convertible debentures (OCDs) aggregating Rs 250 crore will hold OCDs in Bharti Retail as well as Future Retail aggregating to the same amount.
The shareholders and OCD holders of Bharti Group have agreed to share with the companies an upside on the realisation out of the shares of the two companies.
As per the terms agreed, it said: “If the sale proceeds are between Rs 950 crore and Rs 1,450 crore, the amount shall be 50 per cent of the amount above Rs 950 crore.”
On the other hand, if the sale proceeds are between Rs 1,450 crore and Rs 1,950 crore, the amount will be 60 per cent of the amount above Rs 1,450 crore.
In a third scenario, it said if the sale proceeds are greater than Rs 1,950 crore, the amount shall be 75 per cent of the amount above Rs 1,950 crore.
The merger deal would be subject to approval from necessary regulatory authorities, including the Competition Commission of India.