Amazon bids $400 mn for stake in Spencer's; deal stuck at valuation stage

RP-SG’s food and grocery retail chain, Spencer’s Retail, which is in talks with multiple players including Alibaba, has been offered more than $400 million by Amazon for a minority stake.

People familiar with the development said it is likely that Amazon was eyeing a 30 per cent stake. The deal with Amazon was believed to be in the penultimate stage but was held up due to valuation, the sources indicated. Both RP-SG and Amazon declined to comment.

Amazon, which has been on an overdrive to acquire stakes in offline retail firms and has been holding talks with multiple players recently acquired a 49 percent stake in Aditya Birla Group’s Aditya Birla Retail, the balance was picked up by home-grown private equity fund Samara Capital for around Rs 42 billion roughly around $580 million. The buyers also said that they would take Rs 40 billion debt in ABRL, which runs stores under the ‘More’ brand. 

According to sources, Spencer’s wants a better valuation than what More got as it was a profitable chain and the return on investment would be more. 

However, sources at Amazon said that the valuation was being set according to the size and scale of the firm. “More is the fourth-largest supermarket chain in the country and runs 490 supermarkets and 20 hypermarkets.

Spencer’s was expecting a profit before tax this year and it was already PBDT (profit before depreciation and taxation) positive. 

Currently, at 138 stores, Spencer's would be adding another 10 this year. But the RP-SG retail chain has been following a strategy of growing profitably. A while back Spencer’s had embarked on a store rationalisation spree. Also, Spencer's has positioned itself as an "aspirational player" rather than a steep discounter.

Sources pointed to the fact that Spencer's was in talks with multiple players including Alibaba. Alibaba officials recently met at the RP-SG headquarters. 
 

People in the know of developments added that Spencer’s was also in touch with private equity players based in Singapore and West Asia. But it is understood that for Spencer’s the first preference would be to do a transaction with either Amazon or Alibaba. 

Industry insiders said that chances were that Amazon and Spencer’s would come up with an agreeable deal number. The Indian unit of the Jeff Bezos-led firm also recently began formal negotiations with Kishore Biyani’s Future Group to invest around $600-700 million for a 12 to 15 per cent stake in the retail major, it is learnt. The two entities have signed a term sheet to take the talks further, sources said. Although there’s nothing binding about a term sheet, it denotes the two sides have officially entered talks for a deal.      

The deal, if it fructifies, is likely to be a combination of cash and stocks.  The development is significant as it comes soon after the world’s largest retailer Walmart Inc. Closed the $16-billion deal to buy 77 per cent stake in leading e-commerce company Flipkart. Walmart and Amazon, rivals in America’s e-commerce space, are preparing to compete aggressively in India. Amazon’s proposed venture with the Future Group could possibly give the e-commerce giant an edge in physical retail.  

Amazon is currently working on two major initiatives - reaching out to the non-English speaking population in the country through its vernacular platform and expanding its grocery business. 

For the grocery push, while the company has started verticals such as Pantry and Amazon Prime Now, it’s focused on an omni-channel strategy, where a brick and mortar ally could help.

In the US and Europe, Amazon has already started running pilots of brick and mortar retail stores. Earlier in the year, it bought Whole Foods for around $13 billion, helping it gain a massive brick and mortar footprint globally. In India however, Amazon’s plan to tie-up with an offline ally would also help it comply with the foreign direct investment regulations in retail.

Amazon's offline play

• Amazan is loking at a number of potential acquisitions in offline space
• It is reportedly eyeing a 30 per cent stake in RP-SG’s food and grocery retail chain, Spencer’s Retail
• Amazon recently acquired a 49 per cent stake in Aditya Birla Group's Aditya Birla Retail
• The Indian unit of the Jeff Bezos-led firm is also in talks with Kishore Biyani’s Future Group to invest $600-700 million for a 12 - 15 per cent stake in the retail major