AMZN Amazon.com Inc

By Corinne Abrams and Eric Bellman 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 24, 2019).

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 24, 2019 02:47 ET (06:47 GMT)

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