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Walmart Set to Announce Flipkart Deal Today

10 May 2018

Walmart shares are dropping more than 4% in early trading Wednesday after the retailer said it will pay $16 billion for a 77% stake in Indian e-commerce giant Flipkart.

Analysts believe that Walmart's investment in Flipkart, whose 34 per cent market share in India's online sales is ahead of rival Amazon's 27 per cent, will boost the Indian e-commerce company's logistical operations and help it move into new areas such as online groceries.

Walmart's investment includes $2 billion in new equity funding, which the companies say will be used to spur Flipkart's growth. Walmart said it plans to fund the deal through a combination of newly-issued debt and cash on hand. "The proceeds will be used to reinforce Naspers' balance sheet and will be invested over time to accelerate the growth of Naspers' classifieds, online food delivery and fintech businesses globally, and to pursue other exciting growth opportunities when they arise", the company said in a statement. Walmart will retain a 42% stake in that combined company. Walmart is reportedly paying about $15 billion for around 70% of Flipkart, valuing India's most valuable startup at more than $21 billion.

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Tencent Holdings Limited, Tiger Global Management LLC and Microsoft Corp will continue on the Flipkart board and will be joined by new members from the Walmart. Flipkart co-founder Sachin Bansal chose to leave the startup he co-founded with Binny Bansal in 2007.

Last year, eBay had invested over $500 million for a stake in Flipkart, and had sold its India business to the latter. The deal comes less than five years after Walmart exited India as a joint venture with Bharti Enterprises soured.

Flipkart's sales grew more than 50% in its most recent fiscal year to $4.6 billion, Walmart said, compared with $11.5 billion for Walmart's USA e-commerce business. Like Amazon, it started as an online bookstore. He served as Flipkart's CEO for nine years before taking on the role of chairman in January 2016.

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Walmart and Google parent Alphabet Inc will buy up to 75 percent of Flipkart, the two sources familiar with the matter said, declining to be named as the talks are private.

Walmart spent up to 100 billion yen ($878 million) to buy out minority shareholders in Japanese supermarket unit Seiyu Ltd 8268.T in 2007 here. NITI Aayog CEO Amitabh Kant on Wednesday made the government's position clear saying the government is at an arm's length in deals like these but will act as a facilitator for the e-commerce sector.

The deal will have its reverberations on the country's organised retail ecosystem, including the bricks-and-mortar players, but at a later stage. Walmart's business in India was previously focused only on selling items directly to small businesses though its Best Price stores.

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If Walmart continues the same model and Flipkart complies with all conditions after acquisition there would no violation of FDI violation and the deal would not require any approval. However, this huge growth was not enough as its competitor Amazon overtook Walmart's e-commerce growth in the fourth quarter of 2017.

Walmart Set to Announce Flipkart Deal Today