The Break-Up of the RPG-DFI Joint Venture
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Case Code: BSTR229 Case Length: 15 Pages Period: 1999-2006 Pub Date: 2006 Teaching Note: Not Available |
Price: Rs.300 Organization: RPG, Dairy Farm International Industry: Retail Countries: India Themes: Mergers, Acquisitions, Strategic Alliances |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Background-DFI
In 1886, Sir Patrick Manson, a Scottish surgeon, along with five Hong Kong businessmen, established DFI to provide the expatriate Europeans in Hong Kong with uncontaminated cow's milk at a reasonable price. By 1898, there were over 15,000 European residents in Hong Kong and this led to a brisk demand for DFI's milk. In 1904, DFI opened a retail store in Hong Kong to sell imported frozen meat. In 1918, it opened yet another retail store that mainly sold rice to the fishing community of Hong Kong. By 1928, there were six DFI retail stores in Hong Kong and the company also serviced Macau and certain other Chinese cities through its affiliates and subsidiaries. In the mid-1990s, DFI expanded its product range to become a major food retailer and distributor. In 1972, DFI was acquired by Hong Kong Land (a company which was a part of Jardine Strategic Holdings Ltd ).However, DFI was allowed to retain its own name and operate independently...
The Joint Venture
In August 1999, RPG entered into a joint venture with DFI. RPG spun off its FW division as FoodWorld Supermarkets Ltd. (FSL), and DFI obtained a 49 percent stake in this by making an initial investment of $ 6 million. RPG held the remaining 51 percent stake in the company. In addition, DFI also obtained a 49 percent stake in RPG Guardian Ltd., which owned the Health and Glow stores...
RPG's New Retail Strategy
According to some industry observers, RPG now had to start a retail business almost from scratch, as it had lost the well-established FW brand to DFI. However, RPG was confident that it could build upon the 'more than 100-year-old Spencer's brand', which was still respected, especially in the southern part of India, to re-establish its retail business. Another problem that RPG faced was that, unlike other organized retailers like Pantaloon Retail (India) Ltd (Pantaloon) and Trent Ltd (Trent), it did not have a pan-India presence, in spite of the fact that it was one of the first companies to enter the organized retailing sector in India...
The DFI Story
Post split, DFI announced that it had no intention of exiting the Indian market and that it would look out for a suitable partner to continue its operations in India. Said Howard Mowlem (Mowlem), group finance director, DFI, "We see great potential in the Indian market and are keen to expand our presence through both Foodworld and Health & Glow." After the split with RPG, DFI engaged DSP Merrill Lynch Limited to find a suitable joint venture partner for its retail businesses in India. RPG was believed to be in a better position than DFI after the break up of the joint venture, because DFI needed to overcome several regulatory hurdles to continue its presence in the country. Finding the right joint venture partner too was a difficult task....
The Outlook for RPG
In 2005, the Indian retail sector was booming. Global giants like Wal-Mart and Tesco were among the many retailers who were interested in entering the lucrative Indian market. Wal-Mart, the largest retail chain in the world, considered India an attractive investment destination. In fact, in June 2005, Wal-Mart lobbied with the GoI to relax the rules related to foreign direct investment in the retail industry...
Exhibits
Exhibit I: The FW Logo
Exhibit II: The Rpg Group of Companies in 2006
Exhibit III: DFI's Businesses
Exhibit IV: Major Players in the Indian Retail Sector
Exhibit V: The New Spencer's Logo
Exhibit VI: Retail Scenario in India in 2005-2006
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