Walmart finally confirms $16B bid to acquire India's Flipkart

Following weeks of speculation and a premature leak from SoftBank CEO, Walmart has finally confirmed it will fork out US$16 billion to acquire a 77 percent stake in Indian e-commerce operator, Flipkart.
Written by Eileen Yu, Senior Contributing Editor

Following weeks of intense market speculation and a premature leak from SoftBank CEO, Walmart has finally confirmed it is forking out US$16 billion to acquire a 77 percent stake in Indian e-commerce giant, Flipkart.

The remaining shares would be retained by the latter's existing shareholders, including Flipkart's co-founder and CEO Binny Bansal, Tencent Holdings, Tiger Global Management, and Microsoft, said Walmart in a statement late-Wednesday. The shares acquisition was subject to regulatory approval in India.

Walmart CEO and President Doug McMillon said: "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.

"As a company, we are transforming globally to meet and exceed the needs of customers and we look forward to working with Flipkart to grow in this critical market," McMillon said, adding that Walmart's investment would seek to create new skilled jobs and new opportunities for small suppliers and farmers in India.

Its investment also included US$2 billion in new equity funding, which would be set aside to aid Flipkart in driving future growth.

Walmart said it also supported Flipkart's goal to become a "publicly-listed, majority-owned subsidiary" in future. It added that both companies were exploring plans to bring in additional investors, which could bring down Walmart's stake in the Indian company. However, the US vendor said it would retain clear majority ownership.

Walmart's announcement followed weeks of market speculation, which climaxed earlier today when SoftBank CEO Masayoshi Son said during an earnings briefing in Tokyo that Walmart had taken control of Flipkart. Son was touting his company's gains from companies it had invested in.

SoftBank, through its Vision Fund, had parked US$2.5 billion in the Indian company for a 20 percent share. It was reported to have sold its entire share in the Walmart deal.

Earlier this week, before the deal was announced, Forrester's senior forecast analyst Satish Meena said a Flipkart acquisition would make "the best investment option for Walmart", which had tried to enter the Indian retail market for more than 15 years. Indian regulations, however, rendered this impossible, Meena said.

The acquisition also would boost Flipkart's bid to expand beyond smartphones and fashion, and strengthen its footprint against India's second-largest player, Amazon.

"The deal with Walmart can provide Flipkart the expertise of running offline stores, access to sellers and manufacturers, supply chain, and the know-how to get into the grocery segment," the Forrester analyst said. "With Amazon closing the gap in categories other than fashion, Flipkart needs Walmart to remain competitive in the long term."

India's great potential for e-commerce growth

A Walmart-Flipkart deal also provide a boost to India's e-commerce market, which remains small compared to other mature markets.

According to Meena, the Indian online retail segment was worth US$20 billion last year, accounting for just 2.4 percent of the country's total retail industry. "The upside is big for both Amazon and Flipkart in the next two decades. No other market except China and US can compete in terms of total retail opportunity," he said, noting that India's online retail market was projected to hit US$73 billion by 2022, up from US$20 billion last year.

"To reach the next 100 million buyers, both Amazon and Flipkart will have to invest billions of dollars in warehousing, last-mile delivery, and ensure they provide quality products at low prices," the Forrester analyst said. "This is a time-consuming process and both these companies need patient capital to capture the online retail opportunity. For customers, the entry of Walmart is good news as they will get the best deal through competition between these companies."

He added that Amazon would likely invest in an Indian offline grocery player to better compete when the Flipkart-Walmart deal was finalised.

Founded in 2007, Flipkart operates a supply chain business, eKart, that serves more than 800 cities and makes 500,000 deliveries a day.

In its fiscal year, ended March 31, the Indian e-commerce operator clocked US$7.5 billion in gross merchandise volume and net sales of US$4.6 billion. Both figures had climbed more than 50 percent over the previous year.

The acquisition would enable Flipkart to tap Walmart's omnichannel retail experience as well as grocery and merchandise supply chain knowledge, said the US supermarket chain. Flipkart, on the other hand would provide local domain knowledge and customer insights to boost Walmart's play in the Indian market.

According to Walmart, both companies would remain separate brands and maintain their respective operating structures in India. Walmart's local business operates 21 Best Price cash-and-carry stores as well as a fulfilment centre that supports 19 cities across nine Indian states.

Walmart India's current president and CEO, Krish Iyer, would remain in his role.

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