Future expands retail footprint with Bharti deal

By Aditi Shah and Devidutta Tripathy

NEW DELHI/MUMBAI (Reuters) - Future Retail Ltd (FURE.NS) has agreed to acquire most of local conglomerate Bharti Enterprises' shares in its retail business to create one of India's biggest retail chains with more than 570 stores across the country.

Under the all-stock deal valued at about 7.5 billion rupees ($118 million), the retail operations of Future Retail and Bharti Retail will be merged to create a new company.

Future Group, the parent of Future Retail, will hold 46-47 percent and Bharti Retail will own roughly 10 percent stake in each of the two firms, executives from the companies said at a news conference.

Loss-making Bharti Retail will also hold securities that can be converted into shares worth about 5 percent each of the two new companies, which would be listed on the domestic stock exchanges, the companies said.

Bharti Enterprises, also the parent of leading Indian mobile phone operator Bharti Airtel (BRTI.NS), lost a partner to build up its retail business when Wal-Mart Stores Inc (WMT.N) broke with Bharti over their India joint venture in 2013.

"Future Group in particular may not have the financial resources to invest in the growth of the business. And Bharti may have the resources but may not have the desire to do so on their own," said Arvind Singhal, chief of consultancy Technopak.

"Supermarkets and the hypermarkets space is a very very exciting space to be in...yet it is very frustrating because it needs a lot of investment."

Future Retail shares ended 12 percent higher after the announcement, while the Nifty rose 1.8 percent.

The deal also comes against the backdrop of rising competition in the retail sector, with online retailers, who have raised billions of dollars from private investors, wooing shoppers with bargains and deals that brick-and-mortar rivals cannot match.

This has left some traditional retailers vulnerable to being overtaken by better-funded online rivals in a country where a rapidly expanding middle class is turning to the web.

"E-commerce could be a catalyst for people who are getting out of retail to say that: we are anyway under pressure now this e-commerce thing is also happening," said Harminder Sahni, managing director at consultants Wazir Advisors.

"It's probably going to get worse. So let's get out of it and hand it over to some partner and let them run it."

(Writing by Sumeet Chatterjee; Editing by Anand Basu and Louise Heavens)