Walmart pays $16 billion for 77 per cent Flipkart stake
11 May, 2018, 03:56 | Author: Leah Owens
In a unusual coincidence, the deal, valuing Flipkart at $20.8 billion, was announced to the world by SoftBank Chief Executive Masayoshi Son in a webinar with investors hours before Walmart did so.
With Wal-Mart at its back, Flipkart could make the global e-commerce market considerably tougher for Amazon in the long run. Online sales in the world's second most-populous nation are growing about 35% a year, according to data tracker Euromonitor, fueled by a rising middle class and urbanization that present an attractive environment for e-commerce.
Sources close to the matter claim that Amazon India is already busy chalking extensive plans on how to combat the rejuvenated Flipkart post Walmart deal. In its projections, Walmart has indicated that it expects Flipkart's operating losses to nearly double from its fiscal 2017 level of Rs 4,586 crore to Rs 9,111 crore by fiscal 2020.
The deal hasn't gone down well with the tens of millions of small traders who for years used political muscle to slow the arrival of global retailers.
Walmart acquired the stake from among others, Flipkart co-founder Sachin Bansal, who has now exited the firm completely, and from Naspers which sold its 11.18% stake.
U.S. retail giant acquires stake at $21 billion valuation; Sachin Bansal exits.
Walmart entered India in 2009 through a joint venture with Bharti Enterprises, and took full control of that business in 2013. While further investments in Flipkart could bring down Walmart's overall stake in the company, it said that it would retain "clear majority ownership".
"While eCommerce is still a relatively small part of retail in India, we see great potential to grow".
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Tencent Holdings Ltd, Tiger Global Management and Microsoft Corp will also continue to remain shareholders in Flipkart, Walmart said without divulging their stake. We are confident this group will provide Flipkart with enhanced strategic and competitive advantage.
In its news release, Walmart also cast the acquisition as creating jobs within India's economy and supporting small business, even giving a nod to Prime Minister Narendra Modi's "Make in India" campaign. The big advantage that Amazon always had over Flipkart was the unlimited cash it could plough into the growth of its Indian business.
"Flipkart will continue to be a marketplace where sellers from around the country can connect with customers".
How does the Flipkart buyout help the Indian start-up ecosystem?
To get an early advantage in the nascent grocery industry in India, Future Group is all set to launch e-commerce app for grocery delivery offering the daily and weekly requirements to consumers. This is an extension of Walmart's global expansion strategy.
Home to 1.3 billion people, India has seen the size of its middle class surge.
Meanwhile, Amazon is also still fighting hard in India, with founder Jeff Bezos saying last month that Amazon.in had the most-downloaded shopping app in India for 2017.
On top of that, Google too has chipped in with $1.5 billion for controlling 7% stake in the new Flipkart, powered by Walmart, and this changes so many things for the entire eco-system.
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