E-commerce behemoth Amazon is in early stage talks to acquire 26% stake in Reliance Retail, which is India’s largest brick & mortar retail chain, Economic Times (ET) report claims after citing sources privy with the matter.
The negotiation between Amazon and Reliance Retail seems to have started after the latter failed to strike the deal with China’s Alibaba group due to differences over market valuation.
ET claims that it was Amazon that first approached the Mukesh Ambani owned retail company as the former seriously wants to hold a considerable stake in the country’s largest brick-and-mortar retail company. This would evidently help in giving a major push to the Seattle based online retail giant’s long term Omni-channel plan in India, where offline shopping still dominates country’s shopping demography despite the e-commerce revolution.
Reports are also rife that Future Groups, which owns retail chain outlet BigBazaar, is also in talks to acquire stake in Reliance Retail. Future Groups only few days back sold 6% stake in Future Lifestyle Fashion – the flagship fashion arm of Future Groups – to private equity firm Blackstone.
Meanwhile, none of the concerned parties have so far given any statement on this news report.
One of the sources told ET that the deal with Amazon will surely help Mukesh Ambani led Reliance Industries to reduce its outstanding debt that currently stands at 2.88 Lakh crore (41.8 Bn).
Why Amazon won’t buy more than 26% stake in Reliance Retail
In all probability, Amazon won’t acquire more than 26% stake in the Mukesh Ambani owned retail company. This is because the e-commerce giant may not want to find at the wrong end of the new FDI norms that came into effect earlier this year.
According to the new FDI norms, if an e-commerce company owns more than 26% stake in the selling company then it will be considered as a part of the group company and will be barred from selling on the platform.
Amazon certainly won’t like to harm the inventory advantage that Reliance Retail would bring for it by flouting this critical FDI norm.
Reliance Retail has inventory presence across the categories including groceries, fashion and electronics. It boasts nearly 10,644 retail stores in more than 6,700 cities.
If the deal does go through then Reliance Retail will surely become one of the prominent sellers on Amazon platform, which may gave latter the decisive advantage in its hegemonic battle against Walmart owned Flipkart.