Walmart Completes Due Diligence For Stake In Flipkart After Rival Offer From Amazon

Days after buzz of ecommerce behemoth Amazon raising an offer to acquire Flipkart, the reports have surfaced that Walmart has completed its due diligence process and has floated an offer proposal for a 51% stake in Flipkart.

Sources close to the development told Livemint that even though the deal is far from completion, but the talks between the companies and Flipkart’s existing investors are ongoing.

Lookback At Walmart-Flipkart Deal

The talks of Walmart buying a stake in Flipkart first started in 2016 and have fuelled up recently.

Walmart indicated its entry in the Indian ecommerce space by acquiring a 25% to 51% stake in Flipkart with an investment of $7 Bn. At the time, it was reported that Walmart plans to invest in Flipkart through a mix of primary and secondary purchase of shares.

Furthermore, the $10 Bn-$12 Bn secondary share sale will take place at a discounted valuation. 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.

The share sale was fuelled by speculations that SoftBank is preparing to sell a part of its share in the company to Walmart. Other investors were also expected to lower their share in the company.

Other than SoftBank, investors that hold a substantial stake in the online marketplace include New York-based Tiger Global, which currently holds a 20.5% shareholding in the ecommerce unicorn; China’s Tencent, eBay, Microsoft and Accel Partners. The Flipkart founders, Sachin Bansal and Binny Bansal, who are not brothers, hold 10% stake together.

Prior to this, in November 2017, the US-headquartered hedge fund Tiger Global made a partial exit from the venture, when it sold shares worth over $424 Mn in Flipkart to Japanese investment behemoth SoftBank.

It was earlier speculated that SoftBank won’t be willing to shed off a part of its 23.6% shareholding in the company. The Japanese conglomerate invested $2.5 Bn in Flipkart in August 2017, which was a follow-on to the earlier $1.4 Mn fundraise from Microsoft, Tencent and eBay.

However, analysts believe that SoftBank is expected to gain almost $2 Bn from its last investment in the company if the Walmart deal goes through.

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.

What Happens Once Walmart Gets A Majority Stake In Flipkart?

According to the reports, once the deal materialises, Walmart could aid Flipkart in developing its private label business, while Flipkart would open up a vast market for Walmart to challenge its global rival, Amazon.

Further, sources revealed that Walmart is initially not expected to rock the boat and is likely to retain top management. But, might bring in its own people on the legal and finance teams at Flipkart. It is also expected to have a say in the appointment of a chief financial officer at Flipkart.

The attraction of Walmart towards India’s ecommerce industry comes as no surprise since, as per a report by Morgan Stanley, the market is expected to grow to $200 Bn by 2026.

With major stakeholders in Flipkart willing to sell off their stake in the company to enable Walmart’s entry, and recent bid by Amazon, how soon the deal, if happening, materialises and with who is much awaited.