By Corinne Abrams and Eric Bellman
MUMBAI-- Amazon.com Inc. has signed an agreement that would give it the option to take a significant stake in one of India's largest retailers.
The deal would indirectly give Amazon a stake of around 3.5% in Future Retail Ltd., which runs more than 2,000 stores in 400 cities in Asia's third-largest economy. The agreement--subject to regulatory approval--also includes an option to buy part or all of the 47% stake owned by the retailer's founding family, which includes Chief Executive Kishore Biyani. The deal restricts the time period that the call option can be exercised to a seven-year window, according to a stock-exchange filing.
The initial share purchase and option will cost Amazon close to $200 million, said a person familiar with the deal. The deal could eventually give it access to physical stores across the country.
The bigger stake sale would be dependent on a change in Indian regulations, which restrict many types of foreign direct investment in retail. Complicating matters further, India's states and union territories currently can choose how to apply FDI policy, making the application process cumbersome for foreign companies. Amazon looks to be positioning itself in hopes of a rules change, analysts said.
Amazon's stake in Future Retail comes from its investment arm's acquisition of a 49% stake in Future Coupons Ltd., according to the stock-exchange filing. Future Coupons owns 7.3% of Future Retail. Future Coupons is the digital-payments arm of Future Group.
The investment "provides an opportunity for us to learn global trends in digital payments solutions and launch new products," a Future Group spokesperson said.
The Indian e-commerce market is set to exceed $100 billion by 2022, according to a report from PwC India and the National Association of Software & Services Companies trade group.
Amazon has been seeking to expand in India and has pledged to invest more than $5 billion in the country. It faces tough competition from Walmart Inc.-backed e-commerce site Flipkart and local players such as Reliance Industries, as well as from millions of tiny mom-and-pop stores.
Write to Corinne Abrams at firstname.lastname@example.org and Eric Bellman at email@example.com