It's official: Walmart to buy 77% stake in Flipkart for $16 bn

Walmart Inc said on Wednesday it will buy a majority stake in Indian online retailer Flipkart, ending months of speculation around a deal that it hopes will give a leg-up to its international business and take on homegrown rival Amazon.com Inc.

The world’s biggest brick-and-mortar retailer said in a statement it has agreed to purchase a stake of around 77% in India’s largest e-tailer for $16 billion (Rs 1.07 trillion), subject to regulatory approval.

The deal will value Flipkart at $20.8 billion. To put things in perspective, this is higher than the market valuation of Wipro Ltd and HCL Technologies Ltd, India’s third- and fourth-largest software services exporters.

Walmart said the remaining stake in Flipkart will be held by some existing shareholders, including co-founder Binny Bansal, China's Tencent Holdings Ltd, Tiger Global Management LLC and Microsoft Corp.

In a Facebook post, co-founder Sachin Bansal wrote that he will be moving on from Flipkart. "I’ll be taking some long time off and focus on finishing a few personal projects. Will catch up on gaming (and see what kids are playing these days) and brush up on my coding skills," he added in the post.

Japan's SoftBank, Flipkart's largest shareholder before the deal, has also exited.

The investment includes $2 billion of new equity funding. Walmart said it plans to fund the deal through a combination of newly issued debt and cash on hand.

“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,” Doug McMillon, Walmart's chief executive officer, who arrived in Bengaluru on Wednesday, said in the statement.

The statement added that Walmart supports Flipkart’s ambition to transition into a publicly listed, majority-owned subsidiary in the future.
The deal marks the biggest inbound acquisition in India. It will also will give Flipkart fresh ammunition to ward off competition from global e-commerce giant Amazon, which has been pumping billions into its Indian unit.

Hours before the official announcement, SoftBank CEO Masayoshi Son had confirmed that an agreement had been reached on Tuesday night.

SoftBank had pumped around $2.5 billion into Flipkart in August last year. Most of Flipkart's minority shareholders had shed a part of their stake in that deal, with SoftBank accumulating more than 20% stake in the process. Son said on Tuesday his firm's investment in the Indian online retailer had now grown to $4 billion.

Flipkart's other existing investors include venture capital firm Accel Partners, New York-based investment firm Tiger Global and South African tech conglomerate Naspers. Naspers said on Wednesday it had sold its entire 11.18% stake in Flipkart to Walmart for $2.2 billion.

Walmart said it is also in talks with additional potential investors to buy a stake in Flipkart. But it will remain the majority owner, it said.

VCCircle had reported earlier in the day that the Walmart acquisition will be followed by a $3 billion investment by tech giant Google. This will be mostly primary capital infusion into the Indian subsidiary of the Bentonville, Arkansas-based retail behemoth.

New era for Flipkart
For Flipkart, the deal represents another significant milestone on a journey that began a little more than a decade ago. The firm has rapidly grown and diversified during this period and Walmart's entry represents the start of a new era.

"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,” said Binny Bansal, Flipkart’s co-founder and group chief executive officer.

The deal counts as the biggest success for the Indian internet industry and is a landmark event, serial entrepreneur K Ganesh told VCCircle.

"This is a defining moment for startups, entrepreneurs, venture capital and internet business in India," said Ganesh, who has co-promoted companies like BigBasket, Freshmenu and Portea.

Before the deal with Walmart, Flipkart had received more than $7 billion in investment since Sachin and Binny Bansal launched the company as an online bookstore in 2007.

In the fiscal year ended March 2018, Flipkart recorded gross merchandise value of $7.5 billion and net sales of $4.6 billion. The deal with Walmart values Flipkart at around 4.5 times net sales.

The deal also brings with it fresh capital and access to Walmart's local sourcing infrastructure.

"Walmart is strong on private label merchandise. We will see a completely different basket on Flipkart in a couple of years from now," said Anil Kumar, chief of RedSeer, a consulting firm on internet businesses.

There have been reports that Walmart will drive Flipkart's expansion into the grocery delivery segment. The Bengaluru-based firm conducted pilots for this recently.

"The success of Walmart-Flipkart will depend on how soon they are going to experiment the grocery and offline business. That is Walmart's strength," said Satish Meena, senior analyst at market research firm Forrester.

Second-time lucky for Walmart?
Walmart has been trying to establish a foothold in India for more than a decade. But it had met with little success, thanks in large part to India’s reluctance to open its retail sector to foreign companies.

The company began its India journey after tying up with Bharti Enterprises in 2007. The two partners launched their first Best Price Modern Wholesale cash-and-carry store two years later. They parted ways in 2013 and Walmart even booked a hefty loss on the exit.

Flipkart’s acquisition is important for Walmart for several reasons. For one, it will immediately give the company a strong presence in India’s rapidly growing e-commerce market as well as in related areas such as logistics, warehousing and online payments. It will also help Walmart expand its international business, which accounts for less than a fourth of its total revenue.

Equally importantly, it will help Walmart take on main US rival Amazon.com Inc., which is also Flipkart’s nearest rival in India and has aggressively expanded in the country since its entry five years ago.

“This investment will be a challenge for Walmart as they will be under pressure to show results. They need to prove how this will help them in their fight with Amazon in the US and India,” said Forrester's Meena.