Walmart takes a big bite out of Flipkart, grabs 77% stake for $16 billion
The Flipkart-Walmart deal involves the world's biggest company by revenue buying around 77 per cent stake in the Indian e-commerce market leader for $16 billion.
Taking a big piece of India's fast-growing e-commerce pie, Walmart, the world's largest retailer on Wednesday announced its plan to purchase a majority stake in Flipkart. The deal involves the world's biggest company by revenue buying around 77 per cent stake in India's online retail market leader for $16 billion, valuing the e-tailer close to $20 billion.
While Flipkart co-founder Sachin Bansal will sell his entire stake, Group CEO Binny Bansal along with Chinese investment giant Tencent Holdings, US hedge fund Tiger Global and Microsoft will continue to hold their stake in the new entity. Walmart, which intends to use a combination of debt and cash on hand to finance the purchase, will also pump in additional $2 billion into the online major to push further growth.
"The deal indicates the attractiveness of India's consumption market for global majors. With Walmart acquiring stake in Flipkart, we expect enhanced thrust on the online grocery segment. We expect online grocery to be the fastest growing segment in the e-retail space, growing at a 65-70 per cent CAGR to touch Rs 10,000 crore in revenues by fiscal 2020," says Ajay Srinivasan, Director, CRISIL Research.
Walmart said it is in discussion with "additional potential investors who may join the round, which could result in Walmart's investment stake moving lower after the transaction is complete." Earlier, there were reports that the world's largest private employer may rope in tech giant Google to buy a part of stake in India's largest online marketplace. Google's parent Alphabet already has a partnership with brick-and-mortar retail giant in the US since last year.
Commenting on the deal, Walmart's president and chief executive officer Doug McMillon said, "India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market."
Flipkart co-founder Binny Bansal, who will continue as the group chief executive officer said, "This investment is of immense importance for India and will help fuel our ambition to deepen our connection with buyers and sellers and to create the next wave of retail in India."
Walmart said it supports Flipkart's ambition to transition into a publicly-listed, majority-owned subsidiary in the future. It added that Tencent and Tiger Global will continue on the Flipkart board and the final composition of board will also include independent members. Flipkart owns platforms such as Myntra, Jabong and PhonePe, Its supply chain arm, eKart, serves more than 800 cities, making 500,000 deliveries daily.
In a statement, the Bentonville, Arkansas-based global retail behemoth said, "the deal underscores long-term commitment to India, where company looks to serve customers, support job creation, small businesses, farmers and women entrepreneurs." Flipkart owns platforms such as Myntra, Jabong and PhonePe, Its supply chain arm, eKart, serves more than 800 cities, making 500,000 deliveries daily.
Earlier, Masayoshi Son, the CEO of Japanese internet conglomerate had confirmed that SoftBank will sell its stake in the online retail major to US-based Walmart. Son unintentionally made the mega deal news public before the formal announcement. SoftBank Group, which owns about a fifth of Flipkart through its Vision Fund would sell its 20-plus per cent stake in the company. Last year in August, SoftBank had bought a 20 per cent stake in the India's largest online marketplace for $2.5 billion. It was the biggest ever private investment in an Indian tech firm at the time.
Earlier this month, Flipkart bought back over 1.8 million shares worth more than $350 million from minority investors, paving way for Walmart to buy around 70 per cent stake from a single entity rather than multiple parties. Walmart's bid to buy controlling stake in Flipkart is being viewed as an attempt to challenge Amazon's booming retail business across the world.
Walmart's acquisition of Flipkart will help the world's largest retailer in challenging the dominance of Amazon which has been eating up its market share in the US. The deal will also give a fillip to Walmart's online ambitions in a significantly huge market like India.
While both the acquiring and the selling companies are based outside India, the acquisition of Flipkart Pvt Ltd, which is registered in Singapore, may still attract tax liability and the purchaser will have to deduct tax amount while making the payment to existing investors.
Both Walmart and India's homegrown e-commerce leader stand to gain much from the deal. To begin with, they get to pool resources to compete against a common enemy, Amazon, in online as well as offline retail channels. Walmart also gets to grab a foothold in India's booming e-commerce industry.
Flipkart stands to not only add financial muscle but also strengthen its supply chain and enhance efficiency in procurement, product assortment and retailing. India's leading e-tailer, besides, has been looking to open retail stores in India for a long time now but has been waiting for the right investment partner. As such, the partnership between Walmart and Flipkart already seems like a match made in heaven.