RELIANCE – AMAZON $20 BILLION DEAL

This deal between the two companies, is still in the negotiating stage and hasn’t been finalized yet, as mentioned by Bloomberg. According to Bloomberg, Reliance is to offer Amazon a $20 billion stake in its retail arm. This news has positively affected the share price of Reliance too which was, till recently, hovering around Rs.2100 and now it has jumped up by 7%-8%, to approximately Rs.2300. Reliance Industries is the first Indian company to have a $200 billion market cap. (i.e. the total number of shares* the current market price of the share= $200 billion.)

The initial deals with Facebook, Silver Lakes etc are not to be considered the same as the one which may be agreed upon with Amazon. The previous deals were with the Reliance Jio branch and this deal will be taken up by the Reliance Retail portion of the company. Recently, even Silver Lake has invested in the Retail arm of Reliance Industries, a sum of Rs.7500 cr, for a 1.75% stake.

Coming back to the Reliance – Amazon deal, if Amazon pays $20 billion to the company, then around 40% of the stake of Reliance Retail will be obtained by them.

What is the importance of this deal?

If this deal is successful, then it will create a large and powerful retail organization which will make Jeff Bezos and Mukesh Ambani, allies instead of rivals. This deal will be one of the largest deals in the world.

Why will Amazon invest in Reliance?

Reliance will provide Amazon with a ready made foundation in a country where online shopping still accounts for a minuscule share in the huge $1 trillion market. Reliance will also provide with ready made offices for use and storing goods, so basically a whole brick and mortar structure. And this will enable Amazon to be a part of the offline segment of the country, which again accounts for a large part of the market share. Amazon’s past experiences in China, when the company had gone in on its own and failed miserably due to high competition by Alibaba Group and its likes, may play a strong part in the company wanting an already established leading company as its partner in this venture into Asia again.

Why will Reliance sell its stake?

Amazon has huge warehousing capabilities and an ability to streamline supply chains, which Reliance can take advantage of. This will also help fulfill Ambani’s dream of creating an E-commerce giant like Alibaba, in India. Reliance is also going to acquire Futures Group for Rs.24,173 cr.

Of India’s roughly, $792 billion retail market, only 3% was carried out online as of May,2019, as per CARE ratings. The online part of the retail market is projected to grow by 30% over the next few years.