The announcement comes a day after Aditya Birla Group merged its apparel businesses into a Rs 5,290 crore entity named Aditya Birla Fashion and Retail (ABFRL), which will be the largest pure-play fashion lifestyle company in India.
In yet another consolidation in the domestic modern trade sector, Kishore Biyani-led Future group is taking control of Bharti Retail by merging its retail business with the latter in a stock deal worth Rs 750 crore to create a Rs 15,000-crore entity with one of the largest networks in the country.
In a two-tier deal announced today, Future Retail will demerge its retail business to be merged into Bharti Retail, while Bharti's retail infrastructure business will also undergo a similar process to be merged into Future Retail.
As part of the deal, Bharti Retail will get 15 per cent stake in both the merged entities. Bharti Retail will get Rs 500 crore stocks at present and Rs 250 crore stocks will be converted at a later date.
"We are merging our retail businesses to create two separate companies ... The combined retail entity will have a total turnover of Rs 15,000 crore," Future Group CEO Kishore Biyani told reporters here.
Future Group promoters will hold 46-47 per cent stake each in the two new entities. Bharti will have representation on their board with one member. The new retail entity will have one of the largest networks in India with 570 stores across 243 cities.
Stating that Bharti is not exiting from retail business, Bharti Enterprise Vice Chairman Rajan Bharti Mittal said: "We are only merging. This was needed for faster growth. It is a strategic fit for both the companies."
Retail is an evolving sector and it needs economy of scale. Operational efficiency from the deal will create value for both shareholders and customers, he added.
The announcement comes a day after Aditya Birla Group merged its apparel businesses into a Rs 5,290 crore entity named Aditya Birla Fashion and Retail (ABFRL), which will be the largest pure-play fashion lifestyle company in India.
Biyani said they plan to open 4,000 smaller format stores by 2021, up from the total of about 570 stores now.
Bharti's Easyday chain of stores and Future's Big Bazaar stores will continue to operate, he added.
When asked about new stores, Biyani said all new small format stores in North India will be opened under Easyday brand. In South and West India, stores will be opened under Nilgiri and KB's brand.
Bharti Group has been looking out for partners for a full-fledged retail play after parting ways with erstwhile cash and carry partner Walmart in 2013. Bharti Retail runs over 210 Easyday stores across different formats in India, mostly concentrated in the northern region.
Future Group also has been making move to consolidate its business after selling majority stake in Pantaloons to Aditya Birla Retail in 2012. It has a chain under different formats, including hypermarkets under Big Bazaar and supermarkets under Food Bazaar brand.
Following the announcement, Future Retail shares soared 12.06 per cent to close at Rs 129.65 on BSE.
Biyani said the merger between Future and Bharti Retail is a win-win situation.
"There is no overlap in our stores presence. We did not have the smaller format stores that Bharti Retail has," he said, adding the combined entity would have a total of 18.5 million sq ft of retail space.
Although Bharti Retail has zero debts, the new combined retail entity will have Rs 1,200 crore debt, while the combined infrastructure company will have Rs 3,500 crore debt.
As part of the deal, Bharti Retail will issue one equity share of Rs 2 each for every share of Rs 2 held in Future Retail in consideration of the merger of Future's retail business into it.
On the other hand, Future Retail will issue one fully paid up equity share of Rs 2 each to Bharti Retail shareholders for every share of Rs 2 held in it in relation to the merger of the retail infrastructure business.
The equity shares of Bharti Retail issued to shareholders of Future Retail will be listed on stock exchanges.
As part of the deal agreed between the two firms, Bharti Retail's existing holders of optionally convertible debentures (OCDs) aggregating Rs 250 crore will hold OCDs in Bharti Retail as well as Future Retail aggregating to the same amount.
"The shareholders and OCD holders of Bharti Group have agreed to share with the companies an upside on the realisation out of the shares of the two companies," the filing added.
As per the terms agreed, it said: "If the sale proceeds are between Rs 950 crore and Rs 1,450 crore, the amount shall be 50 per cent of the amount above Rs 950 crore."
On the other hand, if the sale proceeds are between Rs 1,450 crore and Rs 1,950 crore, the amount will be 60 per cent of the amount above Rs 1,450 crore.
In a third scenario, it said if the sale proceeds are greater than Rs 1,950 crore, the amount shall be 75 per cent of the amount above Rs 1,950 crore.
The merger deal would be subject to approval from necessary regulatory authorities including the Competition Commission of India.
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