Walmart pays $16 billion for 77 per cent Flipkart stake

New Delhi: American retail behemoth Walmart Inc announced Wednesday that it was acquiring a 77 per cent stake in India’s largest e-commerce firm Flipkart for about $16 billion (Rs 1.05 lakh crores), in what was pegged as the world’s biggest e-commerce deal.

This will give the US retailer access to the Indian e-commerce market, that is estimated to grow to $200 billion within a decade. This deal means the Indian e-commerce space will now be dominated by two US retailers — Walmart and Amazon. In the US, Walmart and Amazon are locked in an intense competition to get the upper hand in retail, which will now be extended to India.

The deal, where co-founder Sachin Bansal and Japan’s Softbank are exiting, values Flipkart at $20.8 billion. It is also the biggest M&A deal in India this year.

Walmart for long has been trying to gain a significant foothold in India and the Flipkart acquisition will provide it what it had longed and lobbied for so hard.

Binny Bansal, who co-founded Flipkart with Sachin Bansal 11 years ago, will retain his 5.5 per cent stake and will be chairman of the company’s board. Walmart’s Krish Iyer will be the CEO of the company which will continue to be based out of Bengaluru.

Walmart and Flipkart will remain separate brands and the Indian e-commerce firm will have an independent board, which will be revamped to give representation to the US firm.

The deal is subject to clearance from the Competition Commission of India and other regulators. It is expected to close later this year.

While the earlier UPA-2 government had allowed FDI in multi-brand retail, the BJP-led NDA government has been against it, making it difficult for foreign companies to expand in India by opening new stores. Walmart now operates just 20 stores in the wholesale segment which sell only to small businesses. The Flipkart deal is likely to change this, and allow Walmart to expand without opening stores, experts said.

Morgan Stanley has estimated the e-commerce market will grow to $200 billion in India in about a decade, and online sales are growing at about 35 per cent a year.

Small traders association CAIT, which has been sceptical about big MNC companies with huge cash piles to burn and gain marketshare through “deep discounts” said “the deal is nothing but in the long run a clear attempt to control and dominate the much potential retail trade of India by Walmart through e-commerce, which is only a bridge to reach out to the offline retail market of India”.

Opposing the Walmart-Flipkart deal, RSS affiliate Swadeshi Jagran Manch said in a letter to Prime Minister Narendra Modi that Walmart was using the e-commerce route to circumvent the rules to attack the Indian market. “Via Flipkart this is not only a backdoor entry, but they are barging into the Indian market. This will further eliminate small and medium businesses, small shops, and opportunity to create more jobs,” SJM co-donvenor Ashwani Mahajan said. He said the Swadeshi Jagran Manch, RSS and BJP have a consensus that FDI in multi-brand retail will kill entrepreneurship, is anti-farmer and “rightly this is kept out”.

Besides the 77 per cent now held by Walmart and Binny Bansal’s 5.5 per cent stake, the remainder of the business will be held by some of Flipkart’s existing shareholders,

including Tencent Holdings, Tiger Global Management and Microsoft Corp. “Walmart’s investment includes $2 billion of new equity funding, which will help Flipkart accelerate growth in the future,” said Walmart. It said the company “is also in discussions with additional potential investors who may join the round, which could result in Walmart’s investment stake moving lower after the transaction is complete”. “Even so, the company would retain clear majority ownership,” Walmart said. Google’s parent Alphabet Inc is seen as a potential investor which may get as much as 15 per cent.

“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,” said Doug McMillon, Walmart’s president and chief executive officer.

Besides its own site, Flipkart owns fashion portals Myntra and Jabong and controls 34 per cent of online sales, which is followed by Amazon, with 27 per cent marketshare.

Amazon has committed to invest $5.5 billion in India to expand aggressively. Amazon was also said to have put in an aggressive offer to buy 60 per cent of Flipkart, but the board of the Indian firm is said to have favoured the Walmart offer.

Walmart entered India in 2009 through a joint venture with Bharti Enterprises, and took full control of that business in 2013.