The world’s largest retailer Walmart Inc is close to clinching a deal to buy a majority stake in Flipkart for roughly USD 15 billion, according to sources. The deal, which will see some of the biggest investors in Flipkart offloading their stake in the country’s largest e-commerce company, could be announced any day now, sources with direct knowledge of the development said.
Japan’s SoftBank Group Corp and Tiger Global Management are said to be selling almost all of their about 20 per cent stake each in Flipkart. Walmart will likely end up with 60-80 per cent of Flipkart, valuing the company at about USD 20 billion, they said. Flipkart was valued at about USD 12 billion last year, according to researcher CB Insights.
The deal will help the US retail giant - which has seen consumers migrate to online platforms like those run by Amazon - get a foothold in the world’s fastest growing economy with a market of 1.3 billion people. The Flipkart model would help the bricks-and-mortar retail giant to take on its global rival Amazon.
For Flipkart, the deal would give it additional capital and retail muscle to fight Amazon. Together, Flipkart and Amazon control majority of India’s USD 30 billion e-commerce market that is forecast to grow to USD 200 billion by 2026 (Morgan Stanley estimate).
E-mails sent to Walmart and Flipkart remained unanswered. A SoftBank spokesperson, in an e-mailed statement, said the company does not comment on ongoing discussions or speculations.
Amazon deal
Amazon was also said have put in an aggressive offer to buy 60 per cent of Flipkart but the board of the Indian firm is said to be favouring the Walmart offer, sources said. There are also reports that Sachin Bansal, who had co-founded Flipkart with Binny Bansal 11 years ago, could be exiting the company by selling his over 5 per cent stake. However, this could not be independently confirmed.
South Africa’s Nasper Ltd is largest shareholder in Flipkart after SoftBank and Tiger Global. It, along with other existing shareholders Tencent Holdings Ltd and Microsoft Corp, are expected to retain small stakes in Flipkart post the Walmart deal.
SoftBank, which had invested USD 2.5 billion in Flipkart, had previously pushed for a merger of rival Snapdeal.com with Flipkart. The deal however fell apart after Snapdeal’s founders decided against the deal. The Japanese conglomerate has already written off its investment in Snapdeal. Softbank, thereafter, went and invested in Flipkart last year.
The deal with Walmart will involve both primary and secondary shares, sources said. One of the persons said possible scrutiny from the Competition Commission of India (CCI) as well as risks related to sharing competitive data as part of due diligence were some of the reasons for Flipkart investors and management favouring a deal with Walmart and not Amazon, even though the rival’s bid was slightly higher.
Amazon is believed to have offered Flipkart a higher valuation of about USD 22 billion, along with a break up fee of USD 2 billion, compared to Walmart’s USD 18-20 billion valuation of the Bengaluru-based company. According to Greyhound Research Chief Analyst and CEO Sanchit Vir Gogia, Walmart adding Flipkart to its kitty will act like a shot-in-the-arm and give it a significant up against ace competition, Amazon.
“Flipkart shareholders also stand to gain a better outcome on their returns (as part of deal with Walmart) and the founders and key management get a bigger stake in the game given higher reliance on them to successfully run and grow the commerce business,” he added.
If the deal with Walmart goes through, it would provide Flipkart with more arsenal to go up against Amazon in the Indian market.
Amazon and Flipkart are locked in an intense battle for leadership in the Indian market and have pumped in billions of dollars towards marketing and setting up infrastructure in the country.
Amazon, on its own, has committed investments to the tune of USD 5 billion for its operations in India. In a recent investor call, Amazon CFO Brian Olsavsky had said the company will continue to invest in India as it sees “great progress” with both sellers and customers here, even though as the US e-tailing giant had registered a loss of USD 622 million from international operations in the first quarter of 2018.
US-based fund house Valic, which holds around 4,502 shares in Flipkart, and Vanguard World Fund, which has four lakh shares, have pegged the valuation of the e-commerce company between USD 15 billion and USD 19 billion. Flipkart was last valued at about USD 12.5 billion when it raised USD 2.5 billion from Masayoshi Son’s SoftBank last year.