Amazon Deal Opens Door to Bigger Footprint in India --3rd Update
August 23 2019 - 1:56PM
Dow Jones News
By Corinne Abrams and Eric Bellman
MUMBAI -- Amazon.com Inc. is acquiring a small stake in one of
India's largest retailers in a deal that gives it an option to take
a much larger stake after three years, underlining its interest in
expanding its operations in Asia's third-largest economy.
The deal sets up the retail giant for a big potential move into
bricks-and-mortar stores in India, as it could eventually make
Amazon the biggest shareholder in Future Retail Ltd.
Initially the deal would indirectly give Amazon a stake of
around 3.5% in Future, which runs more than 2,000 stores in Asia's
third-largest economy. The agreement--subject to regulatory
approval--also includes an option to buy part or all of the more
than 40% stake owned by the retailer's founding family, which
includes Chief Executive Kishore Biyani, according to a
stock-exchange filing.
The initial share purchase and option will cost Amazon close to
$200 million, said a person familiar with the deal. It will lead to
immediate cooperation between the two companies, such as Amazon
using Future outlets for Amazon Now grocery deliveries and Future
listing its many clothing brands and private-label goods
exclusively on Amazon, the person said.
The investment "provides an opportunity for us to learn global
trends in digital-payments solutions and launch new products," a
Future Group spokesperson said.
"This investment will enhance Amazon's existing portfolio of
investments in the payments landscape in India," said an Amazon
spokesperson.
Whether Amazon is able to take a bigger stake after three years
will be dependent on changes in Indian regulations, which restrict
some types of foreign direct investment in retail. Complicating
matters further, India's states choose how to apply foreign direct
investment policy.
Amazon is positioning itself in hopes of a rules change,
analysts said, as having a strong local partner with lots of
physical outlets will help it know the Indian market better.
"I think they are hopeful that in the next five years there will
be a change in the FDI rules," said Satish Meena, senior forecast
analyst at Forrester Research. "In the short term, they want to
solve the problem of getting access to these stores."
Amazon's stake in Future Retail comes from its investment arm's
acquisition of a 49% stake in Future Coupons Ltd., according to the
stock-exchange filing. Future Coupons owns 7.3% of Future Retail.
Future Coupons is the digital-payments arm of Future Group.
The Indian e-commerce market is set to exceed $100 billion by
2022, according to a report from PwC India and the National
Association of Software & Services Companies trade group.
After getting outflanked by local competition and failing to
gain any significant market share in China, Amazon has been among
the most ambitious international tech companies in India.
It has pledged to invest more than $5 billion in the country and
the Future deal will be Amazon's third investment in retail in
India.
Last year Amazon teamed up with a local private-equity firm to
invest in a company that acquired another large retail chain,
Aditya Birla Retail Ltd., for more than $500 million. That deal
could give Amazon access to the more than 500 stores of the More
chain of supermarkets and hypermarkets.
In 2017, Amazon took a 5% stake in Indian department-store chain
Shoppers Stop Ltd.
Just this week it opened its largest corporate campus building
globally in the southern city of Hyderabad, designed to accommodate
more than 15,000 employees. The new facility is a "tangible
commitment" to the company's plans for India, Amazon India country
manager Amit Agarwal said in a news release.
The Future deal sets Amazon up to become the dominant e-commerce
player in India, analysts said. It bonds it to one of the retail
conglomerates with the broadest experience with Indian consumers
and it sets it up for a more aggressive push into groceries, which
account for the lion's share of most Indians' spending.
"We believe that a hybrid retail model combining the digital
power of e-commerce with physical retail's infrastructure and
service capabilities may work best for grocery in India," said
Morgan Stanley in a report on the announcement. "Following this
proposed transaction, we would expect Amazon to adopt the
hybrid-retail model in India."
Meanwhile the deal blocks Amazon rivals such as Walmart Inc.,
its Indian e-commerce site Flipkart and local players such as
Reliance Industries Ltd. from joining forces with Future.
Also Friday, Canada's Cargojet Inc. said it will issue warrants
giving Amazon the right to buy nearly 15% of the air-cargo company
as part of an agreement aimed at expanding its business with
Amazon.
--Newley Purnell contributed to this article.
Write to Corinne Abrams at corinne.abrams@wsj.com and Eric
Bellman at eric.bellman@wsj.com
(END) Dow Jones Newswires
August 23, 2019 13:41 ET (17:41 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Amazon.com (NASDAQ:AMZN)
Historical Stock Chart
From Aug 2024 to Sep 2024
Amazon.com (NASDAQ:AMZN)
Historical Stock Chart
From Sep 2023 to Sep 2024