SUMMARY
The Walmart-Flipkart deal is expected to close by June 2018
As Walmart completes its due diligence on the Indian ecommerce unicorn, the Flipkart camp might have begun with the further steps. However, the deal can still be interrupted as eBay might come as a hurdle.
In a report, Recode highlighted that if Walmart wants to do much business with Flipkart, it will have to first work out a deal with eBay, which had invested $500 Mn in Flipkart in October 2017. At the time, eBay had taken a 5.44% stake in the business and handed over eBay India operations to Flipkart.
Most importantly, eBay also signed a four-year exclusive “commercial arrangement designed to give merchants who sell on Flipkart access to more than 150 Mn new customers from eBay around the globe.”
The deal aimed to provide eBay sellers outside of India with access to a new group of consumers inside of that country. At the time, eBay CEO Devin Wenig had said that this was the part of the deal he was “most enthusiastic about.”
Therefore, the trouble brews in the light that the agreement still has three years to go and includes all types of merchandise except grocery items.
eBay And The Trouble In Flipkart-Walmart Deal
Adding to the trouble is the point that “eBay also has the right to take back control of the eBay India brand name should Flipkart get acquired,” the report quoted one person familiar with the development.
However, another point of view of this can be that “Walmart is only taking a long-term view with the acquisition and won’t feel the need to pay eBay to be able to work with Flipkart on commercial deals for the next three years.”
At the same time, it is likely that “Walmart will have at least some concern over the near-term optics of this deal in the eyes of investors.”
Recently, filings of Flipkart revealed that the company posted losses of $1.3 Bn with $3.09 Bn revenues last year. This may “lead Walmart to strike a deal with eBay to be able to talk about why the deal makes sense in the short term, in addition to the long term.”
Walmart-Flipkart Deal: $7 Bn Investment To Give $20 Bn Valuation To Flipkart
Recently, reports surfaced that Walmart has completed its due diligence process and has floated an offer proposal for a 51% stake in Flipkart. Walmart indicated its entry in the Indian ecommerce space by acquiring a 25% to 51% stake in Flipkart with an investment of $7 Bn. It was also estimated that if the deal goes through, Flipkart’s valuation will rise to $20 Bn from its current valuation of $14.2 Bn.
In February 2018, Inc42 also reported that under this proposed investment, there would also be a provision to set up a chain of retail stores across the country. This was speculated to benefit Flipkart as the company had been eyeing offline expansion for quite some time.
At present, Walmart has a strong presence in the country through its B2B arm, which currently boasts a network of 21 Best Price Modern Wholesale stores. Therefore, with the partnership, Flipkart is bound to win on its deposits as well as expand its offline presence in the country.
According to a report by Forrester Research, online retail sales in India will reach $64 Bn by 2021, growing at a five-year compound annual growth rate (CAGR) of 31.2%. Further, a Morgan Stanley report, indicate that the Indian ecommerce market is poised to touch the $200 Bn mark by 2027.
This data is majorly based on account of factors such as increasing internet and smartphone penetration, a rise in purchasing power of the middle class, growing percentage of the millennial youth, etc.
Indian ecommerce, touted by IBEF to be a $38.5 Bn market as of 2017 and expected to reach $200 Bn by 2026 has been one of the biggest bets of international players in the segment. With another bump in the road for Flipkart-Walmart deal with eBay’s agreement, how and if, Walmart finally acquires Flipkart would be a much awaited and biggest acquisition in the space.
