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Future Retail independent directors say Amazon's internal emails show it misled CCI

They accused Amazon of submitting "completely opposite information'' which was "contradictory" to Amazon's own internal communications regarding the US giant's 2019 investments into FRL's promoter company.

Future Retail independent directors say Amazon's internal emails show it misled CCI

Monday November 15, 2021 , 6 min Read

Independent directors of Future Retail Ltd have shot off another letter to the Competition Commission of India (CCI), citing internal communications of Amazon to establish its contradictory statements before courts and the anti-monopoly body and sought revocation of nod to Amazon-Future Coupons deal.

They accused Amazon of submitting "completely opposite information'' which was "contradictory" to Amazon's own internal communications regarding the US giant's 2019 investments into FRL's promoter company.

The letter, a copy of which has been reviewed by PTI, also says that the US giant was initially planning to pump money into FRL through a proposed foreign portfolio investment.

On December 11, 2018, Amazon had finalised an agreement to acquire a 9.9 percent direct stake in FRL. However, this plan was buried soon after Press Note-2 was issued by the government, which specifically barred a foreign entity from acquiring any stake or control in a retail entity in India.

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That prompted Amazon to invest in the promoter firm, Future Coupons Pvt Ltd (FCPL) rather than directly infusing capital into FRL, the letter said.

Amazon negotiated a 'twin-entity structure', through which it acquired a 49 percent stake in FCPL. FCPL had its own digital loyalty cards, gifting and couponing business, and also held a 9.82 percent stake in FRL.

The US retail giant sought and received approval from Indian regulators, including CCI, for making an investment in the digital loyalty cards, gifting and couponing of FCPL.

No where did it mention in regulatory filings its interest or rights in Future Retail Limited, the letter said adding had it disclosed its intent to acquire control over FRL, the deal would have ran foul of FEMA and FDI laws in the country.

However, an email from Rakesh Bakshi, Head, Legal and Assistant General Counsel, Amazon India, to Jeff Bezos reveals the startling details on how Amazon viewed and planned to enforce its agreements, the letter claimed.

It said Bakshi's email stated that due to foreign investment policy restrictions, Amazon will use a "twin-entity investment" structure to invest in FRL.

The same structure and voting/non-voting split was also how Amazon resolved the restrictions for Project Brigade, where it acquired a 49 percent interest in More Retail Limited (which is also engaged in retail of food and grocery in India), it said.

"This premium is being paid on account of the strategic rights and call option being provided to Amazon. Due to the Call Option and the strategic rights being at or above the prevailing market price, we currently estimate a USD 41 million P&L loss at sign," the letter quoted Bakshi as writing.

The latest letter comes on the heels of the independent directors' first letter last week to agency where they had accused Amazon of violating India's foreign direct investment (FDI) and foreign exchange rules and alleged the US e-commerce giant had "concealed facts" and was making "misrepresentation" and "false representations" while seeking the competition authority's approval for its investment in Future Coupons (FCPL).

Amazon and Future Group have been battling it out in courts after the Kishore Biyani Group in August last year agreed to sell its assets to billionaire Mukesh Ambani's Reliance Retail on a slump sale basis for Rs 24,500 crore. Amazon is objecting to the sell-off plans, accusing Future Group of breaching the 2019 investment pact.

Future Coupons was founded in 2008 and is engaged in the business of marketing and distribution of gift cards, loyalty cards, and other rewards programmes to corporate customers.

The disclosure of these documents, which were made as part of filings in SIAC and Supreme Court in India, lays bare Amazon's intent of circumventing India laws that restrict it from having any rights in retail entities in India, the letter said.

The disclosure will result in cancellation of CCI approvals given for Amazon's all transactions with Future Group, acquisition of More Retail network and other retail networks and commensurate fines and penalties by ED and other enforcement bodies.

The document also brings forth the exact value that Amazon itself calculated, as attributable for the additional rights it negotiated in FRL.

For a measly value of USD 41 million (Rs 300 crore) as detailed in Amazon's own calculations - Amazon is holding ransom a Rs 24,500 crore Future Group-Reliance transaction that can bring relief to banks, lenders, operational creditors and employees of Future Group, it added.

"In spite of the fact that in their mind, the rights acquired by Amazon over FRL 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.

It further states that documents show Amazon was to originally invest directly in Future Retail via foreign portfolio investment (FPI) route, with the investment determined on FRL's valuation.

Amazon paid a 25 percent premium to acquire strategic rights over FRL.

The letter notes that Amazon gave different and contradictory reasons to courts and CCI as rationale for the investments and originally 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 would in turn acquire 9.82 percent of FRL.

The letter also pointed out that Amazon's representation that it does not have any direct or indirect shareholding in FRL is "contradicted by their own internal records". It added that price paid for the FCPL shares were 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".

The independent directors also wrote that the nature of the rights held by Amazon were misrepresented because Amazon's rights over FRL were strategic, but it has chosen to represent these rights as 'investment protection rights' to CCI .

The letter also sought to clarify that the draft of the SHA only provides Alpha veto rights with respect to amendment of articles, and transfer of assets of the company, commensurate with the rights of a 49 percent shareholder, including, consent rights with respect to change in control of the company, transfer of securities of the company, issue of securities, mergers, investments or acquisitions, change in capital structure of the Company, any change in charter documents of the company, winding up of the company, transfer of securities of any Material Entity by the Company, encumbrance over securities of any Material Entity held by the Company."