Future Group merges retail operations with Bharti Retail: E-tailers should watch out

In a move that spells consolidation for the retail sector and could stop the e-commerce sector from hammering the sales of offline stores, Future Group today announced that its retail operations will be merged with Bharti Retail. The announcement sent the former's stock soaring 14 percent to Rs 131.75 in afternoon trade.

Shareholders will get one share of Bharti Retail for one share held.

Deal Details

 Future Group merges retail operations with Bharti Retail: E-tailers should watch out

Representational image. Reuters

As part of the new arrangement, Future Retail's retail undertaking will be merged into Bharti Retail, while the retail infrastructure undertaking of Bharti will be merged into Future Retail. The process will also reorganise the paid-up share capital of Bharti Retail.

"Consolidation process will result in creation of two distinct entities post-merger - one focused on retail operations and other holding the infrastructure and investment," Future Retail said in a statement."

What this means is that  Future Retail will demerge its retail operations into Bharti Retail while the latter will demerge its retail infrastructure into the public listed firm Future Retail. Future Retail will be renamed as Future Enterprises and Bharti Retail will called Future Retail and will be listed separately as a front-end retail company.

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.

"Consolidation and demerger are subject to approvals of shareholders, High Court of Bombay, the Competition Commission of India, the stock exchanges and other regulatory bodies," the company said.

Addressing a press conference, Kishore Biyani said the combined entity will have a total turnover of Rs 15,000 crore while an eight-member committee will run the entity till all approvals are in place.

Retail entity will have a debt of Rs 1,200 crore and the infra entity will have a debt of Rs 3,500 cr debt. The front-end operations will continue with the Easyday brand.

Biyani also expects the number of smaller stores to cross 2,000 in the next five years.

What the deal means for the companies

Kishore Biyani has already streamlined Future Group's entire business into three separately listed entities — Future Retail, Future Consumer Enterprises Ltd and Future Lifestyle Fashion, an apparel retailing company.

The food and grocery retail chains Big Bazaar, Food Bazaar and Food Hall are included in listed flagship Future Retail while convenience stores such as Nilgiris, KB's Conveniently Yours, Big Apple and Aadhaar are part of Future Consumer.

Bharti Retail, which is a wholly owned subsidiary of Bharti Enterprises, runs 216 hypermarkets, convenience stores and supermarkets under the Easyday brand.

After its partnership with Walmart ended in late 2013, the retail business has not really been a core business for the group.

So while Sunil Mittal needed a strategic partner to take forward the retail business, Biyani, on the other hand, had been divesting non-core assets to focus on the key retail business after the group piled up debt. With the two companies joining hands, they will not only be better positioned to take on Mukesh-Ambani owned Reliance Retail and other e-commerce giants.

Now the partnership between the two players will combine operations of Future Retail and Bharti Retail to create 570 retail stores in multiple formats across 243 cities. It will operate 203 Big Bazaar and‘easyday’ hypermarkets , 197 Food Bazaar and ‘easyday’ supermarkets, and 171 other stores comprising of HomeTown, eZone, FBB and Foodhall.

What the management said

"Bharti Retail’s strengths and network compliment perfectly with that of Future Retail. It will bring us closer to millions of consumers and provide new opportunities for our supply partners. The operational efficiencies that can be derived from the merger will create significant value for our shareholders," said Future Group CEO Kishore Biyani.

"The partnership offers compelling synergies in terms of reach, efficiency and experience to build a truly world-class retail network to serve the Indian consumer. Retail is emerging as the next big growth engine for India and we will be well positioned to be a major player in this growth story," said Rajan Bharti Mittal, Vice Chairman, Bharti Enterprises.

So what are the benefits of this consolidation?

The consolidation not only improves productivity and profitability due to synergies in sourcing, logistics and shared services but it also implies a stronger footprint in key markets in NCR, Haryana, western UP and Bangalore. Consumers can now also expect more deals and discounts due to lower marketing costs.

"The scale has become very critical for retail business. This seems to be a good merger. Bharti has a much larger presence in the North and Future Group may get much deeper inroads into the northern markets," BS Nagesh, founder, TRRAIN told CNBC-TV18.

"Coming together of Future Retail and Easyday can give them a very strong pan India footprint which is matched only by Reliance Retail as of now. The potentials are far more synergies in terms of logistics, in terms of supply chain management, technology platform in this particular merger," said Arvind Singhal of Technopak Advisors.

Updated Date: May 05, 2015 08:47:42 IST