The officially-announced plans by U.S. largest retail chain Walmart to acquire a controlling 77% stake in India's leading online retailer company Flipkart for US$16 billion, have been thrown in doubt following the news that Flipkart's largest shareholder Japan's SoftBank is reportedly undecided whether to sell its 21% stake in the Indian online retailer, the Economic Times said quoting two sources familiar with the situation.
In a written statement announcing the deal earlier this week, Walmart's president and chief executive officer, Doug McMillon, did not refer to Walmart's expected acquisition of SoftBank's stake
through its Vision Fund. Neither did the Walmart statement detail the exit of Flipkart other co-founder Sachin Bansal, who according to media reports had sold his remaining 5.5% stake for about
Weighing the options
The latest report on the uncertainty surrounding the mega deal, the Economic Times quoted sources as saying that the Japanese conglomerate was still weighing its options while it was trying to figure out its tax liability that would arise if it sold its shares less than a year after investing in Flipkart. The sources also said that SoftBank was seeing "a significant upside potential in Flipkart," which has been valued at about $22 billion in the transaction announced on Wednesday.
SoftBank favoured Amazon
“As of now, SoftBank has not exited Flipkart. It will take a call on the exit in the next 10 days,” said one of the sources mentioned above. “(SoftBank's CEO Masayoshi) Son is a big believer in India and thinks that the valuation of the company (Flipkart) can go up further.”
During the recently concluded negotiations, SoftBank reportedly had pushed the Flipkart board to consider a potential merger with Amazon India. SoftBank was in favour of Amazon’s offer as it wanted to invest additional capital in the combined entity and also potentially buy more shares from existing investors, Indian media reports said quoting unnamed sources.
According to another source, the situation was "still very fluid” because SoftBank’s Vision fund is registered in Jersey and they could be suffering a huge tax liability because there is no Double Taxation Avoidance Agreement (DTAA) protection with Jersey.”
The Economic Times report said it could not be established if SoftBank would eventually opt to keep a part of its stake in the Indian e-tailer even as Flipkart holds talks to bring in Google owner Alphabet as an investor. Walmart’s buyout of Flipkart is expected to close by the year-end, the U.S. retailer had said in a statement.
However, one of the quoted sources said that in order to avoid the short-term taxation issue, SoftBank may hold the Flipkart stake for 6-12 months before agreeing to a sale to Walmart.
Nol van Fenema