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Mukesh Ambani has joined the league of world’s richest with the help of a simple formula: assembling admirers for $2 businesses. First he got Facebook Inc and Google to back his fledgling digital ambitions, and now he may be trying to entice Amazon.com Inc into his retail venture, already India’s largest.
In four years, the Indian billionaire has amassed roughly 400 million customers for his mobile data business. What does Ambani eke out from each of them? Less than $2 a month. The chump change didn’t deter Facebook and Google’s parent, Alphabet Inc. Together with marquee private equity investors and sovereign wealth funds, Silicon Valley tech titans made a beeline recently to invest in Ambani’s Jio Platforms Ltd, valuing it at about $65 billion. That $20 billion fund-raising spree has already met the refining and petrochemicals czar’s goal of making his flagship Reliance Industries Ltd net-debt-free, giving it enviable financial strength just as the coronavirus pandemic is taking a toll on most other balance sheets. The tycoon wants a repeat performance for another $2 business in his stable: retail.
He has offered a 40% stake in Reliance Retail Ventures Ltd to Amazon, Bloomberg News reported. It’s unclear if Jeff Bezos will bite. But others have. Menlo Park, California-based Silver Lake Partners, which bought a stake in Jio, has written a $1 billion check for 1.75%. Another Jio investor, KKR & Co, is also probably coming on board.
To see how the excitement is rising once again over a princely $2, consider Reliance’s 30 million square feet of retail space. Each square foot, analysts expect, will garner $2 a day by 2022. On an operating margin of 7%, that translates to $1.5 billion in earnings before interest, taxes, depreciation and amortisation. All Ambani had to do was to convince Silver Lake that this Ebitda is worth 38 times today. And with that, he unlocked the gates to a $57 billion enterprise.
If the Facebook deal for Jio is any guide, Amazon as a strategic partner might get its 40% for a small discount to what Silver Lake paid, though the reported $20 billion price tag is still formidable.
Excluding his $38 billion divorce settlement, Bezos hasn’t done a transaction as large as this. There’s another wrinkle. Amazon India, in which he has already committed billions of dollars, competes with Reliance Retail’s physical stores — as well as with Ambani’s version of “phy-gital†retail.
But on his own, Bezos must fight with one hand tied behind his back. Foreign-owned e-commerce sites, such as his or Walmart Inc’s Flipkart, must operate as pure marketplaces for third-party sellers. The law against owning inventory has become stricter, with discounts triggering allegations of favoring connected parties. India’s competition commission received a fresh such complaint from a group of Amazon vendors recently.
—Bloomberg