Reliance Industries reportedly has offered a 40 per cent stake in its retail arm worth about USD 20 billion to Amazon.com, Inc, a report the company said was speculative. Bloomberg News citing a source reported that "Amazon has held discussions about investing in the conglomerate's Reliance Retail Ventures Ltd unit and has expressed interest in negotiating a potential transaction".
The report went on to say that Reliance was "willing to sell as much as a 40 per cent stake in the subsidiary to Amazon" and the deal size at USD 20 billion would be the biggest ever in India.
While Amazon refused to comment, Reliance said, "In light of a high incidence of speculative media queries and incorrect and ex parte media articles relating to purported capital transactions into Reliance Industries or our group companies, we would like to reiterate that as a policy, we do not comment on media speculation and rumours and we cannot confirm or deny any transaction which may or may not be in the works."
"The company evaluates various opportunities on an ongoing basis, it said, adding that the company has "made and will continue to make necessary disclosures in compliance" with listing obligations and disclosure requirements. "Vide this communication, we appeal to the media to carefully examine any such speculative information and safeguard themselves and their readers, many of whom are individual retail investors, from publishing/recycling unfounded and/or incorrect news," Reliance said.
Amazon was an investor in Future Group, whose retail business was acquired by Reliance late last month for Rs 24,713 crore. On September 9, RIL announced the divestment of 1.75 per cent stake in the retail arm to private equity firm Silver Lake Partners for Rs 7,500 crore.
Bloomberg in the report further stated that Amazon hasn't made any final decision on the size of its potential investment and that talks could still fall apart. Commenting on the issue, Credit Suisse said if the deal fructifies, then this will bring together the largest offline and online retailers in India.
"The combined entity can leverage the deep offline retail network of Reliance Retail and established logistics network of Amazon to harness cross-selling and omni-channel opportunities, leading to faster growth in e-commerce penetration in India," it said.
JP Morgan said "if any such transaction were to happen, it would be positive as Reliance Retail would effectively co-opt its largest online competitor." It, however, raised question over 40 per cent stake offer asking that assuming RIL would like to retain a similar or higher stake, what would be implication for any future IPO plans? "It is also not clear if any such large stake sale cash would stay with the parent or be used to grow retail further," it added.
According to Credit Suisse, Reliance can benefit via increase in addressable user base for its online grocery delivery service JioMart (dedicated store on Amazon possible on the lines of Big Bazaar for grocery, electronics and fashion) via access to existing 140 million monthly active users on Amazon.
Also, it could push higher B2B sales for Reliance Market (cash-and-carry arm) through sellers on Amazon (Cloudtail, Appario Retail). Amazon can benefit by leveraging the established offline network of Reliance Retail for pick-up of online orders. Also, it could expand user base by tapping footfalls in Reliance Retail stores to drive online cross-purchases, and gain access to a large logistics network, which has further strengthened post Reliance Retail's acquisition of Future Group's logistics and warehousing business, it said.
Reliance has already announced the expansion of JioMart to electronics and fashion. JioMart is currently catering to only grocery deliveries and plans to expand to electronics and fashion by end of this month. "Balance sheet will be significantly strengthened post the deal," it said adding the series of stake sales in Reliance Retail to Amazon and private equity investors can bring in USD 21-29 billion cash.
Reliance Retail runs supermarkets, India's largest consumer electronics chain store, a cash-and-carry wholesaler, fast-fashion outlets and an online grocery store JioMart. The acquisition of Future Group's retail business will add about 1,700 large stores to RIL's 11,806 stores in its retail segment and increase its organised retail revenue market share by around 5 per cent.