In what has been dubbed the largest ever deal in e-commerce, U.S. retail giant Walmart this week confirmed that it has agreed to buy a controlling 77% stake in India’s biggest online
retailer, Flipkart for US$16 billion.
The deal – Walmart’s biggest ever – gives it greater access to India’s e-commerce market, which Morgan Stanley has estimated will grow to US$200 billion in about a decade.
The acquisition also strikes a blow against U.S. rival Amazon and represents another missed opportunity for Amazon chief executive Jeff Bezos, who has also failed to create a meaningful presence
in China. In the last few months, the U.S. e-commerce giant had attempted to block the Walmart purchase by making competing take-over bids.
In the end, however, Flipkart's owners and shareholders voted in favour of Walmart, a move which faces fewer regulatory hurdles because it has no online retail presence in India, while Amazon is the second-largest e-commerce player and Flipkart’s primary rival.
One of the most attractive retail markets
For the U.S. retailer, the 77% stake in Bengaluru-based Flipkart enables it to tap into India’s retail market without building stores. Walmart once envisioned operating hundreds of locations across India, but it has been unable to open traditional units because of long-standing governmental rules for so-called multibrand international retailers.
Walmart entered India in 2009 through a joint venture with Bharti Enterprises, and took full control of that business in 2013. It currently operates 20 wholesale clubs in India that serve small businesses.
“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 eCommerce in the market,” said Doug McMillon, Walmart’s president and chief executive officer in a statement.
Shareholder structure still unclear
Walmart said it plans to fund the deal through a combination of newly-issued debt and cash on hand. Its investment will include US$2 billion of new equity funding and the company said it remains in talks with other potential investors to join the funding round. It added that a new investor joining could lower Walmart’s stake, but the company plans to continue to retain majority control of Flipkart.
Reuters previously reported Google-parent Alphabet may buy a roughly 15% stake in the company for US$3 billion.
The remainder of the business will be held by some of Flipkart’s existing shareholders, including Flipkart co-founder Binny Bansal, China’s Tencent Holdings, New York-based Tiger Global Management and Microsoft Corp.
The Walmart statement made no reference to the exit of Flipkart other co-founder Sachin Bansal (not related) or the SoftBank Group, which was one of the largest investors in Flipkart through its Vision Fund.
However, a follow-up report in the Economic Times said Sachin Bansai had sold his remaining 5.5% stake for about US$1 billion and had exited the company, while Japan's Sotbank sold its entire stake of more than 20% in the online retailer for about US$4 billion, fetching about 1.5 times its investment of US$2.5 billion in Flipkart just nine months ago.
Walmart intends to keep the current management of Flipkart who will report to Marc Lore, CEO of Walmart’s U.S. e-Commerce, whose company Jet.com was acquired by Walmart for US$3.3 billion in August 2016.
AIOVA considers taking legal action
Meanwhile, the Times of India reported that online sellers on Flipkart are jittery because Walmart has a reputation of killing small businesses with ultra-low prices. They fear that Walmart might bring in its own private labels via Flipkart to the Indian consumers, adding to competitive pressures.
"These products would be brought in at hyper-competitive prices, which will cannibalise the market and make it difficult for other sellers to operate. We are studying the situation and will take appropriate action, including the legal route, if necessary," a spokesperson of the All India Online Vendors' Association (AIOVA), which has 3,500 sellers on large platforms like Flipkart and Amazon, told the Times of India.
eBay cuts ties with Flipkart
In a related development, online marketplace eBay, which had invested about US$500 million in Flipkart and got another US$220 million worth of shares from selling its India business to Flipkart, announced it would end its strategic partnership with Flipkart and relaunch eBay India with a differentiated offer to focus on cross-border trade, the Economic Times reported. U.S.-based eBay said it had notified Flipkart and its new owner Walmart that it would sell its holdings in Flipkart, worth around US$1.1billion.
Nol van Fenema