Amazon India is planning to buy a stake in Aditya Birla’s retail chain of stores More. In order to sharpen its arsenal and match up with the Indian rival Walmart Flipkart, Amazon India has the acquisition plans well laid out.
Amazon, Goldman Sachs, and Samara Capital will be forming a consortium for the acquisition of the grocery supermarket chain More. This deal will value More at a value of INR 4500-5000 crore ($645-$715 million).
The strategic idea behind the deal is that a separate company will be built and Amazon will pick up 49% stake in the same as a strategic partner. The final exercise is currently on, ahead of an official announcement that will be made at the end of the month. Aditya Birla Retail Ltd is a private company which is owned by Kumar Mangalam Birla and he has signed an exclusivity agreement with Samara Capital for bilateral negotiations. Samara is an India focused fund which is said to have reached out to Goldman Sachs and Amazon to join forces.
This restructuring is in line with the foreign investment laws which mention that foreign companies can only hold a maximum of 49% share in multi-brand retailers like More. Nevertheless, foreign companies do overcome this hurdle by creating holding entities in retailing where 100% overseas ownership is allowed. This makes it possible for Indian owned groups to manage front-end stores in the form of a franchise. Earlier, Amazon India picked up a 5% stake in a department store chain Shoppers Stop for INR 180 crores in last September. In the US, it has acquired Whole Foods this year for $13.7 billion.
More is currently the fourth largest supermarket chain operator in the country and it could give an edge to Amazon India. Amazon will be able to deal with the increasing competition in the country from Walmart-Flipkart and retail chains like Future Retail and Reliance Retail. Aditya Birla Retail Limited has 493 supermarkets and 20 hypermarkets under the brand. It has a number of stores across the country and covers more than 2 million sq ft of retail space. It still lags behind Reliance Retail, Future Group and DMart with regard to the number of outlets.
It is largely concentrated in Karnataka, Telangana and Andhra Pradesh where more than half of its stores are situated. It reported a 20% increase in sales in 2017 at INR 4194 crore with a narrowing net loss which stood at INR 644 crore. It will complement Amazon’s plans to venture into the food retail business in India which had hit a roadblock due to the ambiguity in policies.
With the acquisition of More, Amazon India will be able to make a strong headway in the direction and will be able to strengthen itself for the upcoming e-commerce battle in the country.