Walmart To Buy Controlling Stake In Flipkart For $16 Billion

Walmart Inc. will acquire control of India’s largest online retailer Flipkart Ltd. in its biggest deal, taking on Amazon.com Inc in one of the fastest growing e-commerce markets.

The world’s largest retailer will buy 77 percent stake for $16 billion in the Singapore-based holding company of Flipkart, Walmart said in a media statement. The remainder of the business will be held by Co-Founder Binny Bansal, Tencent Holdings, Tiger Global Management and Microsoft, it said.

The investment includes $2 billion in new equity funding and Walmart and Flipkart are in talks with additional potential investors who may join the round. Walmart also said it supports Flipkart’s ambition to transition into a publicly listed, majority-owned subsidiary in the future. The deal, which comes after months of negotiations, values the online retailer at about $20.8 billion.

Walmart, facing a challenge from Amazon in the U.S., will fortify Flipkart with additional cash to take on the world’s largest online retailer and Alibaba-backed Paytm in a three-way battle in India. That also grants it an indirect access to the nation’s $672-billion brick-and-mortar market as rules don’t allow foreign companies to set up retail stores in India. E-commerce accounts for less than a tenth of the sales, providing an opportunity amid rising incomes, growing smartphones use and cheaper data.

“Effectively, this deal is about buying Flipkart and catapulting Walmart into e-commerce leadership in India,” said Ankur Bisen, senior vice-president at retail consultancy Technopak. “This demonstrates why Walmart was also interested in India as a market. Apart from the U.S. and China, there was no other market with the scale and size as far as opportunity is concerned.”

In Flipkart, Walmart gets an e-commerce company that ended the year through March 31 with a gross merchandise value of $7.5 billion. Net sales of $4.6 billion represent more than 50 percent year-over-year growth in both cases.

India is one of the most attractive retail markets given its size and growth rate, President and Chief Executive Officer Doug McMillon said in the statement. “Our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market.”

Other Key Highlights

• Walmart and Flipkart will maintain distinct brands and operating structures.
• Even if new investors come on board, Walmart would retain clear majority ownership.
• Tencent and Tiger Global will continue on the Flipkart board, joined by new members from Walmart.
• The final make-up of the board will also include independent members.
• The deal is expected to close later this calendar year, subject to regulatory approval.

Sachin Bansal To Exit

SoftBank’s 20 percent stake in India’s largest e-retailer is worth about $4 billion in the deal, Chief Executive Officer Masayoshi Son said in an earnings webcast earlier in the day. The Japanese company had bought this stake, through its Vision Fund, for $2.5 billion, he said.

The hanging sword of Amazon made sure that Walmart paid a little extra to get hold of Flipkart, Satish Meena, analyst at Forrester Research, said. “It’s a deal with a heavy premium paid by Walmart for the Indian market.”

As part of the deal, Co-Founder and Executive Chairman Sachin Bansal will sell his entire 5.5 percent stake in the company to Walmart, company officials had told BloombergQuint. Binny Bansal will remain in Flipkart, they 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,” Binny Bansal said in the statement.

Walmart’s Online Push

Walmart, which operates more than 11,000 retail stores globally, has had a tough run in Asia’s third-largest economy. India hasn’t opened multi-brand retail to foreign companies and the Bentonville, Arkansas-based giant set up a joint venture with Bharti Enterprises Ltd. for cash-and-carry wholesale stores.

Bharti pulled out of the joint venture after six years following an internal anti-corruption probe. It now operates 21 Best Price cash-and-carry stores and one fulfillment centre in 19 cities.

Walmart has been on acquisition spree globally to build up its online play. It acquired Jet.com for $3.3 billion in 2016, and followed it up with buyouts of two other online retailers—Bonobos and ShoeBuy— and Parcel Inc., an e-commerce logistics provider. In China, Walmart has acquired a 12 percent stake in e-commerce player JD.com, and in Japan it teamed up this year with Tokyo’s Rakuten Inc.

The deal with Flipkart is Walmart’s biggest acquisition, after its $10.8 billion purchase in 1999 of British retail chain Asda which it has now agreed to sell to British supermarket chain Sainsbury’s.