Amazon limits voting rights in More parent firm to comply with FDI norms

Amazon limits voting rights in More parent firm to comply with FDI norms
Photo Credit: Photo Credit: VCCircle

E-commerce giant Amazon has resorted to a dual-class share regime that limits its voting rights to buy a minority stake in the entity that has acquired the More chain of supermarkets from the Aditya Birla Group.

Amazon has picked up a 49% stake in Witzig Advisory Services Pvt. Ltd through a combination of two classes of equity shares that are differentiated by voting rights, show filings with the Registrar of Companies (RoC). Witzig is a joint venture in which mid-market private equity firm Samara Capital has a controlling stake. It was set up for the purpose of acquiring More.

Accordingly, Amazon has bought 17% stake through Class A equity shares that come attached with one vote apiece, while the remaining 32% is via subscription to Class B equity shares that come with no voting rights.

It should be noted that Amazon is the only subscriber to the Class B share pool in the company’s cap table. Samara and its managing director Sumeet Narang, in his individual capacity, hold the controlling 51% stake in the company.

While the arrangement effectively restricts Amazon’s voting rights to the 17% it holds as shares with that classification, the filings also show that the Seattle-based e-commerce major has the option of reclassifying its Series B shares into Series A shares. However, this is subject to the terms of the shareholder agreement of the company.

Amazon is likely to have resorted to this arrangement to comply with the new norms for foreign direct investment (FDI) in e-commerce. The revised guidelines state that an entity in which an e-commerce venture has a stake cannot sell goods on the platform. Furthermore, e-commerce ventures are not permitted to control inventory on their platforms.

Queries sent to Samara and Amazon did not yield a response till the time of publishing this report.

Amazon has picked up the 49% stake in Witzig via two Singapore-based step-down subsidiaries: Coda Holdings Singapore Ltd and US-based Coda Holdings LLX, the filings show.

As part of the stake acquisition process, Witzig received $590 million (Rs 4,040.26 crore) from Amazon ($290 million) and Samara ($300 million) earlier last month, the filings show.

The country’s anti-monopoly watchdog had in January approved the acquisition of More.

Amazon's grocery app, Prime Now, already has a tie-up with More stores for procurement. After getting permission to start a food-only retailing business in India, Amazon had started its own inventory centre as well and renamed and relaunched the Amazon Now app to Prime Now.

Earlier this week, the food and grocery retail unit of the online marketplace raised Rs 240 crore ($34.7 million) from Amazon Corporate Holdings Pvt. Ltd, Singapore, and Amazon.com Inc.,.