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Future Group, Bharti Retail join forces

To merge operations into new entity that will have turnover of Rs 15,000 crore

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Kishore Biyani of Future Group and Rajan Bharti Mittal of Bharti Enterprises
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Consolidation in the retail sector kicked off in real earnest with Kishore Biyani-owned Future Retail Ltd and telecom-to-financial services behemoth Bharti Retail Ltd on Monday announcing a reverse merger deal involving equities worth Rs 750 crore.

In a two-step pact, the Future Group will demerge its retail business to join it with Bharti Retail to create Rs 15,000 crore retail entity with 570 multiple format stores across 243 cities while their infrastructure and investment will be combined to create a new firm Future Enterprises Ltd.

Rajan Mittal, vice chairman of Bharti Enterprises, said the deal entails both equity and convertible debenture, which will give Bharti Enterprise a stake of 14-15%.

"The way the deal is structured, both equity and convertible debenture put together, will give Bharti Enterprise that holds Bharti Retail about 14-15% stake," he said.

Bharti will issue one share of Rs 2 each for every share of Rs 2 held in Future Retail for the merger of Future's retail business into it.

Mittal said the deal did not spell exit of Bharti as it would be playing a larger role despite the minority shareholding.

Kishore Biyani, CEO of Future Group, said the new retail entity would come into being in 6-8 months after approvals from Competition Commission of India, Securities and Exchange Board of India, stock exchanges and agencies come through. He said composition of the company board had not yet been finalised but there would be at least one representative from Bharti Retail.

"We are inviting Rajan Mittal on the board of retail business. Currently, Future Retail has eight member board. We have not yet finalised the composition of the board of the new entity," he said.

The two retail firms has been in talks for quite some time now. Bharti had been on a lookout for a new partner after its breakup with retail multi-national Walmart. Biyani, on the hand, was looking to scale up and trim his debts to take on growing competition from brick-and-mortar and e-commerce players.

Interestingly, this deal comes a day after Aditya Birla Group announced the merger of its apparel businesses to create the largest pure-play fashion retail firm Aditya Birla Fashion and Retail (ABFRL).

Biyani said joining forces with Bharti will help in reducing the cost of operation, improve its reach and reduce interest cost as the restructured entity will have lower debt of just Rs 1,000 crore.

The merged entity will continue to use all the brands under it – Big Bazaar, easyday, Food Bazaar, HomeTown, eZone, FBB, Foodhall, Nilgiri's KB and others.

Biyani said easyday, the neighbourhood small store format, will be grown from the current over 500 stores to 4,000 stores in the next five years.

Rakesh Biyani, joint managing director, Future Retail, said the merger will bring into play synergies between the two to expand rapidly.

He said they were banking on omnichannel to swiftly scale up.

"Just e-commerce is not enough, physical presence is very essential in retail business. Even with best in class e-commerce in the world, its penetration is just 25% of the entire market," he said.

According to him, smaller format will give his company wider reach by bringing the consumers closer at a faster pace.

"For us, there is a limitation of how much you can grow a large format stores and at what speed. All our acquisitions have been towards smaller formats. That's the way to go as the infrastructure evolving is restricting your travel time. Being more closer to the consumer is also an important aspect," said Biyani.

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