Walmart to pay $16 bn for 77% stake in Flipkart
MEGA DEAL Buyout to value Flipkart at about $21 billion, making it one of the biggest ecommerce takeovers in India
American retail giant Walmart Inc has agreed to pay $16 billion for a 77% stake in Flipkart, valuing India’s largest start-up at about $21 billion in what is one of the largest acquisitions ever in the country.
The deal will redraw the retail landscape in India as Walmart takes its domestic battle with arch-rival Amazon to the global stage. It will also give a massive boost to entrepreneurship and the start-up ecosystem, which has struggled to provide exits.
The buyout, which is Walmart’s biggest acquisition and the biggest e-commerce deal globally, marks the end of an era as Flipkart co-founder and chairman Sachin Bansal will leave the company and sell his 5.5-6% stake in the company. Flipkart’s other founder Binny Bansal will continue as Flipkart Group CEO and Kalyan Krishnamurthy will retain his position as Flipkart CEO.
The deal, which will need to be approved by the anti-trust regulator, comes less than five years after Walmart exited India as a joint venture with Bharti Enterprises soured.
“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 eCommerce in the market,” said Walmart chief executive officer Doug McMillon said.
Singapore-registered Flipkart, which owns the fashion retailers Myntra and Jabong and the mobile payments app PhonePe, has seen its valuation jump to $21 billion from just $10.2 billion a year ago.
Walmart will invest $2 billion directly into Flipkart and buy the rest of its stake from existing Flipkart investors including SoftBank Group, Accel Partners, Naspers and eBay Inc. Tiger Global Management, Flipkart’s most influential shareholder, is also selling much of its 20% stake. According to a person familiar with the matter, Walmart may invest more money into Flipkart after a year.
The sale will lead to windfall gains for Flipkart’s earliest investors Accel, Tiger Global and Naspers. Tiger Global partner Lee Fixel, who was the driving force behind the deal, has now established himself as one of the most important start-up investors in the world.
Flipkart’s largest shareholder SoftBank Group will sell its 20%-plus holding entirely over time, marking a massive gain on a $2.5 billion investment only made last August. Though SoftBank is still evaluating ways in which it can avoid a hefty tax liability.
Binny Bansal, Tencent Holdings, Tiger Global and Microsoft will retain some portion of their shareholdings in the company. Tencent and Tiger Global will retain their board seats; Walmart will add new members to Flipkart’s board including independent directors.
Walmart said it is in talks to bring new investors into Flipkart. One person familiar with the matter said that Flipkart is in discussions with Google, Intel and existing investor Microsoft to raise more capital.
Walmart said that the Flipkart Group recorded gross merchandise value of $7.5 billion for the year ended 31 March, an increase of 50% over the previous year. Flipkart’s net sales also jumped by 50% to $4.6 billion.
Walmart, which will retain the Flipkart brand, said it supports “Flipkart’s ambition to transition into a publicly-listed, majorityowned subsidiary in the future.”
But a listing of Flipkart is unlikely any time in the next few years given that the company will need to keep spending lots of cash to keep its leadership position amid the battle with Amazon India.
Analysts expect Amazon to increase its $5 commitment toward expanding its India business.
Walmart also has a wholesale business in India, which will continue to be led by Krish Iyer. The company operates 21 Best Price cash-and-carry stores and one fulfillment center in 19 cities across nine states.
The Walmart stock was down 4.2% in early trading in the United States on the news of the acquisition.
NEWDELHI: