The independent directors of Future Retail have written to the Competition Commission of India (CCI) stating that it is found that the representations made by Amazon in the application to the CCI for approval, which were completely opposite and contradictory to their own internal correspondences and notes as submitted before the courts.
"We, as independent directors of Future Retail Limited (FRL), have inspected and examined the pre-contractual negotiation related records in connection with Amazon's investment in Future Coupons Private Limited (FCPL) which has been recently come to FRL's knowledge as part of court filing," the letter to CCI Chairman Ashok Kumar Gupta said.
"In the above facts and circumstances, it is evident that Amazon has obtained CCI approval by making deliberate misrepresentations and by actively misleading the CCI. Amazon should have made true representations conforming to its internal records and obtained approval for the transaction they proposed to make i.e. acquisition of strategic rights over FRL and obtained approval for the same. It is our duty as independent directors of FRL to bring the above to your notice. In the teeth of the above, the CCI has to revoke the approval granted for Amazon's investment in FCPL," the independent directors said.
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The letter says that due to Amazon's concerns arising out of Press Note 2 (PN2), the investment structure was changed to Amazon investing in a twin-entity investment structure i.e. Amazon would invest in FCPL and FCPL will acquire 9.82 per cent of FRL.
Evidence of this is contained in Annexure 2, an e-mail dated 19-07-2019 from Rakesh Bakshi, Head, Legal and Assistant General Counsel, Amazon India to Jeff Bezos, CEO of Amazon.
Amazon's representation that Amazon does not have any direct or indirect shareholding in FRL is contradicted by their own internal records.
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The email addressed to the CEO of Amazon said: "...The number of equity shares of Future Retail to be held by Future Coupons has been calculated such that Amazon can indirectly hold the same number of shares of Future Retail that Amazon would have acquired if Amazon had directly invested Rs 14 billion in Future Retail at a price per share representing a 25 per cent premium on the minimum regulatory price prescribed for issuance of fresh shares of a listed entity under Indian law. In summary, Amazon is paying a premium of 25 per cent (Rs 2.8 B i.e $41M at current exchange rates) over the regulatory price of the securities of Future Retail. This premium is being paid on account of the strategic rights."
In the CCI application, it was represented that FCPL's unique business model holds a strong potential for long term value creation and providing returns on Amazon's investment. But the above representation is not borne out from Amazon's internal records.
The email to the CEO, Jeff Bezos analyses FRL's business and operations. There is only one sentence on what is FCPL's business. (c) The price which has been paid for the FCPL shares has been determined by Amazon on the basis of FRL's valuation as is clearly set out in the email. There is no valuation ascribed or carried for FCPL business per se. FCPL is just used as a vehicle for an investment in FRL, the letter said.
As per Amazon, they have paid a premium over their perceived valuation of FRL to acquire strategic rights over FRL: "In summary, Amazon is paying a premium of 25 per cent (Rs 2.8B i.e ~$41MM at current exchange rates) over the regulatory price of the securities of Future Retail. This premium is being paid on account of the strategic rights. Due to the Call Option and the strategic rights being at or above the prevailing market price, we currently estimate a $41MM P&L loss at sign."
Inspite of the fact that in their mind, the rights acquired by Amazon over FRL were strategic, Amazon has chosen to represent these rights as 'investment protection rights' to CCI, the letter said.
Amazon's representation that FRL SHA was negotiated by the Promoters, FRL and FCPL, independent of the investment by Amazon in FCPL is not supported by their internal records.
