Kishore Biyani Shot Himself In The Foot: If A Day Is Too Long In Politics, Ten Years Are An Eternity In Business
Kishore Biyani committed the cardinal sin of agreeing to barter away his business rights in 2019 by granting Amazon a 10-year call option to buy out his futures retail.
Pardesi yon se na akiya milana goes the angst-ridden song of sixties of the last century. Kishore Biyani of the Futures Group committed the cardinal sin of allowing his hands to be tied by the American e-commerce giant Amazon when in 2019 he blithely agreed to barter away his business rights by granting it a 10-year call option to buy his futures retail out.
He little realised that 10 years is too long a period in the rough and tumble of business especially in the one where the rules of the game and mode of doing business are in a constant change of flux.
The very next year, he brazened it out by entering into an agreement with Reliance Retail for a $3.4 billion seamless merger deal despite the call option that forbade him from selling or obliterating his retail business and despite the express covenant that he would not sell out to Reliance in particular.
Predictably, the Singapore International Arbitration Center as well as our own Supreme Court (vide the 6 August 2021 verdict) have halted the deal with Reliance in its tracks.
It is not wrong to seek foreign investment. In fact, foreign direct investment (FDI) is encouraged by the government to bridge the enormous capital shortage the nation faces. But when one sells his company, he must be doubly cautious.
It is this context that the song pardesi yon se…. resonates. Americans are famous for writing in iron-clad contracts in their favour. In return for Rs 1,500 crore infusion for a 49 per cent stake in Future Coupons, the parent of Future Retail, Biyani sold his conscience in a Faustian deal.
In hindsight, Reliance’s offer was genuine, here and now besides being generous and many times over the Amazon offer.
To be sure, Amazon had not yet coughed up the money for transfer but it was cleverly playing dog-in-the-manger with a very small upfront investment, nay option fee that lo and behold would not evaporate on exercise or non-exercise of the option at the expiry date as it normally happens but begot Amazon a stranglehold on Future’s business given the fact that 49 per cent stake was in the parent company.
In the meanwhile, it could thwart any attempt by anyone else particularly Reliance from taking over Future.
Biyani in the past had resented our FDI in e-commerce policy that enabled foreigners to upset our retail applecart. But somewhere down the line he chose to join them when he couldn’t beat them.
His advisers in fact let him down because had they done proper scanning of the goings on in the business world, they would have found that Reliance, a domestic giant to the boot, was seeking to spread and expand its brick and mortar stores footprint.
It is also a sad commentary Reliance’s much-vaunted business intelligence gathering skills that it didn’t keep its ears to the ground and find out what Biyani was up to.
Anyway, insolvency of Future Retail is staring the nation and its banks in the face. Insolvency will hit banks. The cash-strapped group companies jointly owe around Rs 19,000 crore to banks, besides the Rs 6,000 crore dues to the vendors. FRL alone owes Rs 6,278 crore debt with 28 banks, including SBI, Union Bank, Bank of India, Bank of Baroda, Axis Bank, and IDBI Bank, among others.
“We don’t have any assets that can be liquidated to recover loans. Our stores are on rent and products are supplied by the vendors. A major portion of the income is going to employees and vendors,” confided an insider.
Merger with Reliance Retail would have been beneficial for our banks in particular and the nation in general but it looks unlikely the way Amazon is hell bent on playing dog in the manger. It is possible that Amazon is waiting for a call from NCLT under IBC where it would perhaps exercise its option to buy out Future Retail dirt cheap taking advantage of its plight.
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