How the RIL deal put overseas deals of Future Group in limbo

NEW DELHI: Future Group’s previous deals with some of its foreign partners are staring at an uncertain future, after the group sold some of its assets to Reliance Industries.
Indian analysts tracking the deal between Reliance Industries and Future Group said they were not sure how Future Group would honour those partnerships.

“What matters is whether the deal had been signed by entities that are being sold or by Future Enterprises. Please understand that Future Group is not selling the companies, but only assets and rights to use the brand name and franchise. It is a slump sale, not an acquisition in the normal sense of the word,” said Probal Sen, an analyst with Centrum Broking, told ETMarkets.com.

“The entity is not being acquired. As long as the contracts (with foreign partners) have been signed by the entity, I am not too sure who will honour the agreements. They may be reworked,” he said.

Future Consumer had a partnership with Choithrams & Sons, which is a leading retailer in West Asia, to sell its popular products under Tasty Treat, Golden Harvest, Karmiq, Kara, Sunkist, ThinkSkin, Mother Earth, Kosh and Nilgiris brands, as per Dubai-based news outlet Arabian Business.

RIL in a response to Arabian Business said it was premature to comment on the issue at this stage, as the ownership of the Future Group businesses were yet to be transferred. But it added the company would figure out plans on the overseas tie-ups of the Future Group in due course of time.
RIL has not sought to expand its retailing venture beyond India so far and is concentrating on scaling its business domestically. This secular focus is putting Future Group’s deal in jeopardy.

Shares of Future Group have been hammered after an initial jump, following the announcement of a deal with RIL. Future Retail has plunged the most, down 34 per cent since the announcement. Future Enterprises, Future Enterprises-B DVR and Future Lifestyle Fashions have plunged 20-23 per cent during this period. Other group stocks have also fallen 13-17 per cent.

Sen said he doesn’t track Future Group stocks closely but said the initial reaction could be due to the agreed upon share swap ratio as shares adjusted. The recent pressure on the stocks could be because a number of things needs to be worked out, and how stocks will be allotted to minority shareholders.

“The shares of Future Group are now pegged to Future Enterprise with the scheme of amalgamation being announced. The performance of the group will be subdued until there is clarity on the remaining businesses including Insurance and real estate which the company intends to liquidate for further debt reduction. The investors can avoid investing in the group for now,” said Divam Sharma, co-founder at Green Portfolio, a Sebi registered PMS firm.

On the other hand, Sen believes RIL is a fantastic buying option as the deal with Future Group is happening at one-fourth of valuation of D-Mart. The takeover will complement Reliance Retail’s omni-channel offering, he said.

Credit: Stocks-Markets-Economic Times

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