Future Retail’s independent directors have written a second letter to the Competition Commission of India (CCI), alleging that records show that Amazon, in its application to the anti-trust watchdog, has contradicted its internal correspondence submitted before courts.
This is the second such letter in less than a week that accuses the American ecommerce giant of concealing information and requests CCI to revoke the nod it gave to Amazon-Future Coupons Private Ltd (FCPL) deal in November 2019.
The latest letter, a copy of which has been reviewed by Moneycontrol, says that the independent directors examined the pre-contractual negotiation records of Amazon’s investment in Future Coupons Private Ltd (FCPL) and found that the representations made by Amazon in its CCI application “completely contradict internal correspondences”.
“In spite of the fact that in their mind, the rights acquired by Amazon over FRL (Future Retail Limited) were strategic, Amazon has chosen to represent these rights as ‘investment protection rights’ to CCI,” the letter notes and urges the CCI to revoke approval for Amazon’s investment in FCPL.
Documents show Amazon was to originally invest directly in Future Retail through the foreign portfolio investment (FPI) route, with the investment determined on FRL’s valuation.
It added that the price paid for the FCPL shares was determined by Amazon on the basis of FRL’s valuation and that there was “no valuation ascribed or carried for FCPL business per se” and “FCPL is just used as a vehicle for an investment in FRL”.
Amazon paid a 25 percent premium to acquire strategic rights over FRL.
What the Letter Alleges
The letter says Amazon gave different and contradictory reasons to courts and CCI for the investments and originally it was to invest directly in FRL through FPI. This was then changed to Amazon investing in a twin-entity investment structure—through investment in FCPL, which, in turn, would acquire 9.82 percent of FRL.
Indian laws do not allow foreign companies to buy shares in multi-brand retail firms without the government’s approval.
The letter says this concern was communicated by Rakesh Bakshi, Head, Legal and Assistant General Counsel, Amazon India, Amazon CEO Jeff Bezos on July 19, 2017, stating: “Due to the recent PN2 restrictions under Indian foreign investment laws, we will use a “twin-entity investment” structure to invest in Future Retail.” PN2 refers to press note 2 that lays down FDI norms for ecommerce in India.
The letter also sought to clarify that the draft of the SHA only provides Amazon with veto rights with respect to the amendment of articles and transfer of assets of the company, “commensurate with the rights of a 49 percent shareholder”.
Amazon’s representation that it does not have any direct or indirect shareholding in FRL is “contradicted by their own internal records”, it says.
The independent directors also wrote that the nature of the rights held by Amazon was misrepresented because Amazon’s rights over FRL were strategic but it “has chosen to represent these rights as ‘investment protection rights’ to CCI”.
The internal correspondence accessed by the independent directors is part of court filings.
History of the Case
On November 8, too, independent directors of FRL wrote to the CCI requesting it to revoke the approval it had given to Amazon-FCPL deal in November 2019. They claimed that Amazon has concealed certain information when seeking approval for the deal.
“Amazon sought and obtained the approval of the commission on the basis that it was investing in the business of FCPL and not on the basis that it was acquiring strategic, material and special rights over FRL in preference to all the shareholders of FRL,” the independent directors said in the letter.
On August 12, 2019, Future Retail, Future Coupons and certain promoter entities of the Future Group entered into an agreement under which the retail firm was required to get the nod of FCPL for selling its assets, among other things.
Ten days later, Amazon agreed to invest Rs 1,431 crore to buy a 49 percent stake in Future Coupons. Under the terms of this deal, Future Coupon had to get Amazon’s consent before it okayed any proposal of Future Retail.
Future Coupons owns a 9.82 percent stake in Future Retail. Thus, this deal allowed Amazon to not only indirectly hold a 4.81 percent stake in Future Retail but also got effective veto power over the listed retail company.
Amazon and Future are fighting multiple cases in different courts and tribunal. In August, the Supreme Court had ruled that SIAC emergency arbitrator’s award (of a stay on the Reliance-Future deal) was valid in India.
A month later, the apex court stayed the proceedings in the Amazon-Future Retail case in the Delhi High Court for four weeks.
Separately, the Future Group has moved the High Court seeking a stay on the SIAC order and sought approval for conducting a meeting of creditors and shareholders as directed by the NCLT’s Mumbai bench in September.
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