Walmart Says India To Become Key Centre For Learning After Flipkart Acquisition

Walmart announced its acquisition of Flipkart Group (“Flipkart”) for $16 Bn today and following this announcement, Walmart’s CEO Doug McMillon called the deal a step towards ensuring the next generation of growth, in a investor call in which he also said that India will play a major role in helping Walmart run its global retail operations by being a key centre of learning for the company .

Answering a question about what Flipkart brings to Walmart’s US operations, the company described the team at Flipkart as “creative problem solvers” and said that it is well aware of the tech talent available in the country after having experience of working with professionals for some it’s tech operations which are based in the country and that personnel from India could be brought into the States at some point.

Addressing concerns of Flipkart’s loss-making track record, McMillon said the company had given the deal “significant thought” and that it understood the expectation of shareholders but he reiterated that the deal is important to the company as it sees promise which is evident in performance metrics of  Flipkart, like GMV of $7.5 Bn which was reported at the end of last fiscal year ended March 31 and the seven-fold growth in active customers since 2014 which stood at around 54 Mn users.

Commenting on expectations of Flipkart going for an IPO, McMillon said the company is supportive of such plans and that it could also look at the possibility of taking the Flipkart brand to other countries.

 Another point that was often repeated during the call was the ecosystem that Flipkart has built which involves fashion ecommerce companies like Myntra and Jabong, which the CEO described as an important category to win, a positive when it comes to margin rates and that this “piece”of the company is positioned well to take advantage of India’s growing middle class and relatively young population. McMillon went onto describe the building of payments system, PhonePe, by Flipkart crucial to the growth of ecommerce and building of better relations with consumers through frequent interactions. 

Breakdown 

The deal is the biggest one that Walmart has made and includes $2 Bn of new equity funding, that the company says will help Flipkart accelerate growth in the future. The remaining stake in Flipkart will be held by some of  the company’s existing shareholders, including Flipkart co-founder Binny Bansal, Tencent Holdings Limited, Tiger Global Management LLC and Microsoft Corp, the company said in a press release earlier in the day.

The company said Tencent and Tiger Global would continue to be part of Flipkart’s board and will be joined by new members from Walmart. The final make-up of the board has yet to be determined, but it will also include independent members and the company said that it expects to close the deal by the end of this calendar year.

Walmart is also looking at including more partners and has indicated that its stake may reduce before or after the deal closes but maintained that it will still retain clear majority ownership. Some of Walmart’s India specific initiatives include partnering with kirana owners and members to help modernize their retail practices and their adoption of digital payment technologies. Another step the company said it will take forward in a bigger way is to support farmers and develop supply chains through local sourcing and improved market access.

Here are some interesting takes on the deal-