Reliance Retail filed for approval with the Competition Commission of India (CCI) to acquire the retail, wholesale, logistics and warehousing businesses of the Future Group. According to reports, the CCI will be looking at both the offline and online aspects of the deal, together as well as separately, to decide whether the deal is anti-competitive. This is reportedly what was done in the past as well.
CCI will have to examine if the deal is anti-competitive as Reliance Retail, by itself, was already the countryâ€™s largest retailer in terms of store count. With the acquisition of Future Retail, it is said to have almost doubled Relianceâ€™s retail footprint. Reliance agreed to buy the businesses of the Future group for Rs 24,713 crore.
As per an estimate by Motilal Oswal, after the acquisition of Futureâ€™s grocery and apparel business, Relianceâ€™s market share went up to 38% from the earlier 22%. This may make the market a duopoly, with the only other major player being DMart.
Apart from the physical stores, the deal will also affect the e-commerce space as the deal will give a push to e-commerce venture JioMart, as it would already have a strong supply chain and logistical network offline. According to Goldman Sachs, JioMart may have half of Indiaâ€™s online grocery market by 2024.
â€śThe Transferor Companies consists of several listed and unlisted companies, primarily engaged in retail, wholesale, logistics and warehousing businesses. These businesses operate on a pan-India basis, and include retail operations across segments such as food and grocery, apparel, footwear and accessories, other merchandise, etc,â€ť the companies said in the CCI filing.
An official told the Economic Times that the first step is that a market is defined broadly, and then narrowed down. However, this is a mammoth deal, one that the anti-trust body may not have a precedent for.
â€śItâ€™s not like the CCI would have too many past precedents of a similar nature and definitely not a deal where there are so many aspects to examine for the entire supply chain,â€ť Kanika Chaudhary Nayar, a partner at law firm Luthra & Luthra, told ET.
According to Bloomberg Quint, the CCI has primarily looked at pure-play retail market deals, but here will have to look at the value chain.
"The four verticalsâ€”front-end retail, wholesale, logistics and warehousingâ€”will be looked at as separate markets which are linked to each other. Within front-end retail, thereâ€™s offline and online. So the regulator will examine the vertical and horizontal overlaps in all these markets," Rahul Rai, an independent competition lawyer, told BQ.
Horizontal overlaps are when the company operates in the same market at the same level, whereas vertically they operate in the same market at different levels.
He added that there might be a time when Reliance could start dictating the prices, and will also look at how parties are vertically related.
In its filing, Reliance said that the transaction will not lead to â€śany change in the competitive landscape or cause any appreciable adverse effect on competition in India,â€ť irrespective of the manner in which the markets are defined.