In a move that will create one of the largest retail networks in the country, Kishore Biyani and Rajan Bharti Mittal announced the merger of Biyani’s Future Retail with Mittal’s Bharti Retail in a ₹750-crore all-stock transaction.
Post merger, the combined retail entity is expected to have a total turnover of ₹15,000 crore.
While Biyani and Mittal have termed this as ‘consolidation’, analysts saw the deal as Bharti moving to exit from its retail business, following its Walmart experience and the policy uncertainty on FDI in multi-brand retail.
Splitting businesses After striking the deal, Biyani said that post merger the front-end retail and logistics infrastructure businesses will be split and operated through two distinct entities.
The first entity, likely to be named Future Retail Ltd, will host the retail operations, while the second, proposed to be called Future Enterprises Ltd, will handle infrastructure, investments, and assets.
Listing plans Mittal said Future Retail and Future Enterprises will eventually be listed. Bharti will hold 14-15 per cent stake including equity and debentures. Mittal will also have a seat on the board. Dismissing speculation that this deal means Bharti’s exit from retail business, Mittal said: “If we were exiting, we wouldn’t be merging and entering into a partnership.”
The consolidation and demerger are subject to approvals of shareholders, the Bombay High Court, the Competition Commission of India, and the stock exchanges, besides the regulatory bodies and are expected to take 6-8 months. The integration will be led by an eight-member committee with four each from Future Retail and Bharti Retail.
Post merger, Future Retail Ltd will have a debt of around ₹1,200 crore, while Future Enterprises Ltd will have a debt of around ₹3,500 crore. The current debt of Future Retail Ltd is around ₹5,200 crore.
Share swap The process will also re-organise the paid-up share capital of Bharti Retail. The merger will be completely through swapping of shares with no cash component.
Bharti Retail’s shareholders will get ₹500 crore worth shares and ₹250 crore worth debentures as part of the deal.
Biyani said, “The operational efficiencies that can be derived will create significant value for our customers as well as our shareholders.
“We believe with this we will be able to create a format that will fulfil our dream to have 4,000 small format stores by 2021.”
Big Bazaar to continue He said Bharti’s easyday stores and Future’s Big Bazaar stores will continue to operate.
The combined entity will have over 570 retail stores in 243 cities with operational retail space of over 18.5 million square feet.
It will operate 203 Big Bazaar and easyday hypermarkets, 197 Food Bazaar and easyday supermarkets, and 171 other stores comprising Home Town, eZone, FBB and Foodhall.
Paresh Parekh, Tax Partner - Retail Practice, EY India, said the merger will help the two entities optimise their costs and sourcing.
Rachna Nath, leader - retail and consumers, PwC India, said, “With the FDI in multi-brand retail still not a reality, a consolidation amongst the Indian players has long been on the anvil.”