SUMMARY
Walmart Is Now Expected To Acquire 85-86% Stake In Flipkart
As speculations of the Flipkart-Walmart deal continue to create a buzz, the global retailer is now planning to involve Google’s parent Alphabet taking a stake in Flipkart for nearly $1-2 Bn.
As per reports, the investment from Alphabet will come after the Walmart acquisition, expected to be announced shortly.
This isn’t the first time Walmart is tying up with Google. Under a partnership forged in 2017, Walmart products are sold on Google Express, while it also offers personalised voice shopping for Walmart products online.
This follows Google’s continued India-centric approach, where it has been introducing its portfolio products for Indians, the latest one being Job Search, Home and Home Mini.
Furthermore, from the earlier expected stake of 50-51%, Walmart is now expected to acquire 85-86% of Flipkart through a mix of primary and secondary investment. Beyond the direct investment of $2-2.5 Bn, Walmart is said to be in talks to acquire the shareholding of its investors.
An email query sent to Flipkart didn’t elicit any response till the time of publication.
Let’s take you through the latest developments of the biggest deal in ecommerce:
- In April, Walmart completed its due diligence and also reached an agreement with Flipkart’s existing investors viz New York-based investment firm Tiger Global Management, South African media conglomerate Naspers, venture capital firm Accel, China’s Tencent Holdings and Japanese Conglomerate Softbank for its 23.6% stake.
- Also, at the same time, the company is planning retention of top employees. Myntra CEO Ananth Narayanan and PhonePe co-founders Sameer Nigam and Rahul Chari are expected to continue in their roles. While it also tries to get Flipkart CEO Kalyan Krishnamurthy to continue in his role. At the same time, Walmart has plans to give a bigger role to Flipkart executive chairman Sachin Bansal and wants him to be more involved in the running of the company.
- Beyond reluctance of Softbank to part with its stake for a ‘low price’, the deal also saw a rival offer from Amazon and also a breakup fee of $1-2 Bn offered.
- The major concern also remained eBay-Flipkart deal, under which eBay signed a four-year exclusive “commercial arrangement” following which “eBay also has the right to take back control of the eBay India brand name should Flipkart get acquired”.
The proposed investment deal will include a provision to set up a chain of retail stores across the country.Walmart already has a strong presence in the country through its B2B arm, which currently boasts a network of 21 Best Price Modern Wholesale stores. The partnership with Walmart, therefore, would not only increase Flipkart’s cash balance significantly but would also enable it to expand its footprint in the offline retail segment.
If the deal materialises, Flipkart will be able to procure grocery and consumer goods directly from Walmart’s wholesale stores, which would, in turn, ensure better delivery speed and product availability.
Recently, Flipkart won a year-long battle against income tax for classifying its discounts as capital expenditure.
Flipkart reported losses of over $1.3 Bn (INR 8,771 Cr) in FY17, which translated to an increase of 68% from the $814 Mn loss it registered in the fiscal before that. As indicated in the financial reports of Flipkart, a five-fold increase in finance costs of $671 Mn (INR 4,308 Cr) contributed to the losses in FY17.
India’s ecommerce industry is expected to touch $200 Bn by 2026, as per a report by Morgan Stanley. The market reached $33 Bn registering a 19.1% growth in 2016-2017, as per Indian government’s Economic Survey 2018.
In a huge market, Walmart’s acquisition of Flipkart is a massive boost for the industry. With Google’s Alphabet ready to take the plunge in what may be ecommerce’s biggest deal, this would be Google’s foray into Indian ecommerce Industry.
