Amazon.com Inc. said Future Group, its India partner, broke a contract by approving a $3.4 billion sale deal with billionaire Mukesh Ambani's Reliance Industries - a dispute that could impair a huge retail deal.
Shares of Future Retail lost nearly 10% Thursday, the biggest intraday decline in over a month. Reliance shares fell 1.6% before paring losses.
Future Group - India's second biggest retail chain - announced in August the company was disposing of its retail and wholesale operations, including its logistics business, to Reliance Retail for $3.5 billion. But Amazon and Future Group struck a deal before Reliance Retail entered the scene.
The Seattle-based e-commerce company's investment in Future Group included contractual rights, as well as a right of first refusal and "a restricted list" of entities that Future was not allowed to sign deals with, sources said. They said this was the primary reason why Amazon sent Future Groups the legal notice.
In 2019, Amazon bought a nearly 50% stake in Future Coupons Ltd, which owns a 7.3% investment in the retail company that operates more than 1,500 outlets in India, including grocery chain Big Bazaar.
According to an Amazon representative, the company initiated steps to impose its contractual rights. "As the issue is sub-judice, we can't provide details," Bloomberg News quoted the representative as saying in an email.
The U.S. retail company would have employed a "strong noncompete and first right of refusal," Arvind Singhal, Technopak Advisors chairperson, said. "It looks like that clause has been violated," he added, Bloomberg reported.
Amazon's notice of legal action has baffled many in India, as the U.S. retail conglomerate is said to be preparing to buy a multibillion-dollar share in Reliance Retail, earlier reports said.
Amazon founder Jeff Bezos has made the budding India retail sector, with its 1.3 billion consumers, a concentration of his company's worldwide expansion.
