Walmart completes ~16-bn Flipkart deal
Walmart has completed the acquisition of a majority stake in India’s leading e-commerce marketplace Flipkart, the two companies announced in a joint statement on Saturday. The $16-billion deal would see the world’s largest retailer taking ownership of a 77 per cent stake in the Indian firm.
The deal, the largest of its kind globally, was announced in May and received the nod from India’s competition watchdog earlier this month. Its closure sets the stage for India to become the latest battlefield in the fight for dominance between Walmart and Amazon.
“Walmart and Flipkart will achieve more together than each of us could accomplish separately to contribute to the economic growth of India, creating a strong local business powered by Walmart,” said Judith McKenna, president and CEO of Walmart International. “Our investment will benefit India by providing quality, affordable goods for customers, while creating new skilled jobs and opportunities for suppliers.”
As was decided in May, Flipkart’s current management, led by CEO Kalyan Krishnamurthy, will continue to run the e-commerce firm. Cofounder Binny Bansal, apart from representatives from Tencent and Tiger Global, will continue to hold their seats on the company’s board, which will now be augmented by Walmart representatives.
Walmart had earlier said it would appoint five members to the eightmember board of Flipkart, two of whom will be independent directors and not affiliated to the Bentonville, Arkansas-based company.
Flipkart’s current management, led by Kalyan Krishnamurthy, will continue to run the firm
“We are ready to deliver the full value of this partnership for India,” said Binny Bansal, co-founder and group chief executive officer of Flipkart. "By combining Walmart’s omni-channel retail expertise, supply-chain knowledge and financial strength with Flipkart’s talent, technology and local insights, we are confident that together we can drive the next wave of retail in India.”
The completion of the deal will see the exit of several investors in Flipkart, including SoftBank, which reported it was making a 60 per cent return on its $2.5 billion investment in the Indian firm. Sachin Bansal, co-founder and former chief executive of Flipkart who led the company almost for eight years, is also
out and is estimated to have earned a little over $1 billion through the transaction.
Walmart’s backing will augment Flipkart’s ability to take on Amazon, which is burning well over $1 billion a year to win in India. Just in the first two quarters of the current fiscal, Amazon has invested ~53 billion (approx $750 million) into its Indian e-commerce business as it looks to accelerate growth and get ahead of Flipkart.
The deal with Walmart includes a $2 billion equity component, which, the two companies said, would be used to grow Flipkart’s business in India.
Analysts expect Flipkart to continue to be a drain on Walmart’s profits for the next couple of years, despite the companies indicating that
they were trying to build a profitable business that could even be taken public within the next five years.
Walmart maintained its guidance, saying that earnings per share for FY19 would be impacted by $0.25-$0.30 on account of interest that needed to be paid on the borrowings for completing the $16 billion deal. The company also added that it expected headwinds to the EPS of around $0.60 in FY20 on account of additional investment required for accelerating the growth of Flipkart.
After Walmart stocks rose earlier this week on strong revenue growth and also 40 per cent growth in the e-commerce sales in the US, analysts downgraded the stock due to Flipkart’s weight on the company’s profits for the next few years. The US retail giant’s stock closed 0.8 per cent down on Friday before the markets closed over the weekend.
Walmart’s backing will augment Flipkart’s ability to take on Amazon, which is burning well over $1 billion a year to win in India