Amazon’s drawn-out legal fight to prevent a homegrown business conglomerate from acquiring one of India’s biggest retail organization for $3.4 billion is not going the way the U.S. tech titan had hoped.
Since late 2020, Amazon has sought to stall a merger between Reliance Industries and Future Retail Group that would give the former another 1,800 stores operating under the Big Bazaar, Central and Foodhall banners, as well as control of Future’s logistics and warehouse operations.
But the tension has further escalated as Reliance has taken over the operations of at least 800 Future Retail stores this year and offered jobs to its employees after the group failed to make lease payments to landlords. According to Future Group, the company received notices for 342 large-format stores and 493 small-format stores.
Central to Amazon’s problem with the merger was Reliance’s minority ownership stake in Future Group’s Future Retail Limited (FRL), which amounts to 49 percent ownership of the company’s Future Coupons subsidiary. Upon acquiring the stake in early 2020, Amazon included clauses barring the group from selling its retail assets to anyone on a “restricted persons” list including Reliance Industries CEO Mukesh Ambani. As such, Amazon argues that the sale to Reliance directly violates these terms.
In December, the Competition Commission of India (CCI) suspended its approval of Amazon’s Future Group investment.
After a year-long back-and-forth that has seen various courts across India and Singapore favoring Amazon and Future Group in separate rulings, lawyers for both parties told India’s Supreme Court on March 15 that despite agreeing to out-of-court settlement talks earlier this month, negotiations had broken down yet again. Amazon had filed a new case with the High Court of Delhi to counter the store takeover.
That same day, Amazon took out an advertisement in India’s leading national daily publications accusing Reliance Industries and the Future Group of “playing a fraud on” regulatory bodies including the CCI, and other legislative authority groups such as India’s Arbitrational Tribunal.
Amazon didn’t respond to a request for comment.
Despite Amazon’s dual attack on the companies, Future Group seems to be fed up with all sides as well.
In a Thursday filing with the stock exchange BSE, the Mumbai-based company rejected Amazon’s allegation and instead accused Reliance of “forcefully” taking control of hundreds of its stores.
“FRL’s board had two meetings and notified Reliance Group that such a drastic and unilateral action of Reliance Group to take over the stores has not only come as a surprise to FRL but also complicated the positive scenario,” it said in the BSE filing.
The pending acquisition comes as Future Group was hit hard by Covid-19-related shutdowns, with the company already weighed down by high debt that put the business’ operations in doubt. Future Group’s lawyers have argued in court that the Reliance tie-up is crucial for the retailer’s survival and an aborted deal may lead to bankruptcy and job losses.
Amazon is trying to strengthen its foothold in India, which has a retail market that will amount to $1.3 trillion by 2024, up from $883 billion in 2020, according to Forrester Research data. But even amid pledges to invest $1 billion in capital for small businesses, the e-commerce giant has seen a fair share of backlash in the country.
With both Amazon and Walmart-owned Flipkart dominating e-commerce market share, India’s regulators have become wary of American and other foreign-operated tech firms, thus creating an environment where smaller, domestic players are given a leg up.
India’s e-commerce regulations prevent foreign online retailers from both holding inventories of goods and selling them directly to customers. Instead, they must only collect fees from vendors selling products on their marketplace. E-commerce marketplaces, regardless of origin, also cannot mandate that merchants sell any product exclusively on their platforms.
To circumvent this, foreign e-commerce players sometimes operate through a complicated maze of joint ventures with local companies that function as inventory-holding firms. Amazon itself is reportedly one of them. A Reuters investigation in February 2021 detailed the actions Amazon took from 2012 from 2019 to get around India’s strict e-commerce regulations, including publicly misrepresenting ties with its major sellers Cloudtail and Appario (both of which are Amazon joint ventures) and giving preferential treatment to a small subset of sellers.
South African court stops construction of Amazon HQ
Sparring with global regulators and judicial systems seems to a hallmark of Amazon’s efforts to scale in new markets. While the company is fighting antitrust litigation in the U.S. and Europe, Amazon is now embroiled in a battle over where it can place its proposed African headquarters.
A South African court halted construction of Amazon’s new headquarters in Cape Town after some descendants of the country’s earliest inhabitants said the earmarked land is sacred ground.
The Western Cape division of South Africa’s High Court prohibited project developer Liesbeek Leisure Property Trust from continuing with work at the 37-acre Cape Town site until stakeholders engaged in meaningful talks with affected indigenous peoples.
“This matter ultimately concerns the rights of indigenous peoples…The fundamental right to culture and heritage of indigenous groups, more particularly the Khoi and San First Nations Peoples, are under threat in the absence of proper consultation,” Judge Patricia Goliath said in her ruling.
Amazon would be the anchor tenant of the $350 million development, which also includes plans for a hotel, retail offices and residences. It lies in between the Black and Liesbeek Rivers, both of which are considered sacred by many of those objecting to the construction.
Construction of the development had original continued despite the case being before the court in January. Amazon first received Cape Town officials’ approval in April 2021 to build the site, but the decision was soon followed by protests. The court order is the culmination of up to 50,000 objections from various parties.
In a statement, Liesbeek Leisure Property Trust said it was “deeply disappointed” in the court’s decision.
Amazon employs nearly 7,000 people in the data hub of Cape Town, and with unemployment in South Africa exceeding 30 percent, federal authorities are further encouraging foreign investment.