Samara-Amazon acquires Kumar Mangalam Birla’s More retail chain


September 20, 2018

Written By Writankar Mukherjee & Sagar Malviya, ET Bureau

KOLKATA | MUMBAI: The Aditya Birla Group is selling supermarket chain More to Witzig Advisory Services, owned by Samara Alternative Investment Fund, in a deal that will eventually see Amazon picking up a 49% stake, according to people with knowledge of the matter.

The deal pegged at about Rs 4,200 crore will give the online giant access to more than 500 physical outposts across the country, albeit indirectly. The Witzig-Samara end of the transaction was made public in an exchange filing on Wednesday. RKN Retail, which owns Birla’s retail venture along with Kanishtha Finance and Investment Pvt, told the BSE that the board had approved the sale of its entire shareholding in

Aditya Birla Ltd (ABRL) to Witzig. ABRL, Samara and Amazon didn’t respond to queries sent by email.

“Amazon will initially buy 35% in the retail chain from Samara AIF and will raise it to 49% over time,” said the people cited above. Since Samara AIF is sponsored and managed by Indians, it will be considered a domestically controlled vehicle as per law, irrespective of the percentage of foreign corpus, and compliant with the rules on overseas investment in retail, said one of them.

It took more than a month for the legal teams of all the parties involved to arrive at the complex deal structure, said the people cited above.

Aditya Birla Group chairman Kumar Mangalam Birla told employees about the plan in an email.

“In order to achieve full potential, ABRL needs a strong balance sheet and continued large investments.

Keeping in mind the group’s capital-allocation priorities and ABRL’s needs, I believe that at this stage, it serves the best interests of the business to opt for an external investor,” Birla told staff in his communication, which ET has seen.

Keeping in mind the group’s capital-allocation priorities and ABRL’s needs, I believe that at this stage, it serves the best interests of the business to opt for an external investor,” Birla told staff in his communication, which ET has seen.

“Towards this end, we have decided to accept an offer from Samara Capital for acquiring the business. This transaction is subject to necessary regulatory approvals.”

“Since the backend company where Samara and Amazon are investing has no restriction on FDI (foreign direct investment), there is no problem,” one of the executives said. This means the company won’t need to seek approval of individual state governments to operate More stores, which is a requirement under multi-brand retail foreign direct investment (FDI) rules, the person said.

India allows 51% FDI in multibrand retail, while 100% FDI is allowed in cash-and-carry wholesale ventures that sell grocery and other products to business entities such as neighbourhood stores.

Amazon will continue the marketplace model for its online food and grocery sales since India does not allow overseas investment in inventory-based ecommerce. ET broke news of the More-Samara deal ahead of the announcement in its online edition on Wednesday, having first reported on Amazon’s role in the transaction on August 20.

Experts said the acquisition will help meet Amazon’s aspiration to be a bigger player in the $400-billion food and grocery market, a segment that has failed to translate into a big online business as most Indian consumers still prefer buying items of daily used from kirana stores.

“At the moment, it looks like a Samara play but Amazon is looking at it from a long-term view. For Amazon, India is a strategic market and there are obviously synergies in terms of omni-channel presence,” said Devangshu Dutta, chief executive at consultancy firm Third Eyesight. “The retail market will gradually move away from traditional trade and there will be an overlap between consumers for modern trade and online channel.”

The latest deal also represents Amazon’s escalating battle with US rival Walmart that bought a majority stake in online firm Flipkart for $16 billion in May this year. Globally, both companies have been dabbling in cross-channel acquisitions — Amazon acquired grocery chain Whole Foods for almost $14 billion as well as launched checkout-free Amazon Go store in Seattle last year.

Walmart has been on a similar shopping spree — acquiring 100% of Chinese ecommerce business Yihaodian in 2015, having picked up a 51% stake in 2012. It acquired in a $3.3-billion buyout, followed by a strategic alliance with in 2016. Last year, it added Moosejaw, ModCloth, Bonobos and Parcel to further consolidate its online-offline strategy.

More’s stores will be critical for Amazon’s omni-channel strategy which is intended to widen and deepen its footprint in food and grocery retail through its platform, Amazon Prime Now. Prime Now is currently limited to some areas of Mumbai, the National Capital Region, Hyderabad and Bengaluru.

Amazon, through the foreign portfolio investor route, acquired 5% in department store chain Shoppers Stop for about Rs 180 crore in September last year.

The fourth-largest supermarket chain owner in India after Future Group, Reliance Retail and D’Mart, ABRL has about 575 More branded supermarkets and hypermarkets, covering more than 2 million sq ft of retail space. In FY18, ABRL posted its first positive earnings before interest, taxes, depreciation and amortisation (EBITDA) at Rs 1 crore.

Revenue for the fiscal year was about Rs 4,400 crore, an increase of 5% from a year ago. Net loss narrowed to Rs 490 crore in FY18 from Rs 644 crore in FY17. The deal will effectively wipe out the entire debt on ABRL’s books — Rs 4,000 crore as of March.

After its takeover, the Samara-Amazon combine plans rapid expansion of the More chain, which has been stalled due to ballooning debt, said the people cited above.

The idea is to set up 100-150 stores every year, mostly neighbourhood supermarkets and a few hypermarkets.

The target for the current fiscal is to add 90 stores, one person said. Samara-Amazon will stick to the current management team.

Pranab Barua, who was the director for apparel and retail businesses at the Aditya Birla Group, will become a director of the acquired entity, while Mohit Kampani will continue as CEO.

After acquiring Trinethra Retail about a decade ago, Aditya Birla Group merged it later with ABRL. The group has also restructured its retail business by carving out the apparel-making Madura Fashion & Lifestyle division from Aditya Birla Nuvo Ltd and merging it with the listed Pantaloon Fashion and Retail Ltd. This reorganisation created the country’s largest branded apparel company by sales and number of stores.

Source: economictimes