SUMMARY
Walmart Is Said To Acquire 80-85% Stake In Flipkart
As the deadline for Flipkart-Walmart deal nears, reports have surfaced that Walmart is likely to gain about three to four seats on the 10-member board of homegrown ecommerce unicorn Flipkart, which will continue to run as an independent company if the deal goes through.
A report quoted people close to the matter as stating that keeping its startup culture, cofounders Binny Bansal and Sachin Bansal along with CEO Kalyan Krishnamurthy will remain in their present roles.
Flipkart is also targeting a potential public offer in the future as “Flipkart is taking a longer-term view and is looking at the entire team. They are excited about the market and want everyone to be incentivised for an IPO.”
However, this is not expected to happen for next four to five years and will depend on either Flipkart reaching profitability milestones or by getting a significant market leadership over Amazon India.
Furthermore, sources also revealed that Walmart may get a CFO at the helm and handle legal compliance.
At the same time, a potential offer from Amazon to invest in Flipkart is yet to come through while the final talks between Flipkart and Walmart continue. However, Softbank is said to be in favour of an offer from Amazon but other investors are wary as they believe that such a deal could run into trouble with competition regulators.
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 speculation in the Indian ecommerce so far:
- The most recent speculation that surrounded the deal is the participation of Google’s Alphabet. Google’s parent Alphabet is expected to take 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.
- 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.
Walmart Focusing On Major Markets
As Walmart nears its talks for investment in Flipkart, the global retailer giant is reportedly in talks to give up control over hundreds of stores in the UK and Brazil.
The report quoted people close to the development to reveal that Walmart is near a deal to sell a majority stake in its UK grocery chain Asda to rival J Sainsbury. “The agreement is expected to be announced Monday and Walmart would retain around 40% of the merged company”, one of the sources said.
At the same time, Walmart is also discussing to sell a controlling stake in its Brazilian operations to private-equity firm Advent International. “Though a deal isn’t final, Advent could take an 80% stake in the Brazil business as soon as next month”, one of these people said.
Earlier, Walmart CEO Doug McMillon has reportedly said, “We’ve set priorities, focused on our North American core and key growth markets, including China and India.”
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.
As the Flipkart-Walmart deal nears completion, the industry speculations have also aggravated. In past, the Indian ecommerce space has already seen one such big deal, the Snapdeal acquisition of Flipkart, which fell apart after months of negotiations.
However, with Walmart chasing the Indian market for a long time now, and the major stakeholders in Flipkart like Softbank in a position to reap in over 50% returns on a year old investment, the chances are quite high that the Indian ecommerce might see the biggest deal of the decade. The deal looks for the start of a new era of online retail in India, where we will have players like Amazon India, Walmart, Paytm Mall (backed by Alibaba and Paytm), as well as Kishore Biyani’s Retail 3.0 model Tathastu, leveraging the offline neighbourhood kiosks.
