Even as US retail giant Walmart is in the final stages of talks to buy a majority stake in India’s largest e-tailer Flipkart, talks of Amazon joining the fray with a competing bid have surfaced. This, analysts say, is “business as usual” in the race for dominance in the world’s second-largest consumer market.
“There are only two reasons why companies buy out others — to grow their market share or to make sure their competition does not buy it. In this instance, the major reason for Amazon to offer a competing bid at this stage is to ensure that its arch-rival Walmart does not buy Flipkart,” said Harminder Sahni, founder and MD of Wazir Advisors, who does not rule out the possibility of Amazon buying out Flipkart.
The situation is reminiscent of when British retail giant Tesco was on the verge of closing a deal with India’s Bharti Group almost a decade ago, and was upstaged at the eleventh hour by Walmart, which then started its cash-and-carry wholesale business in India, said Sahni.
In its fight with Amazon on home ground, Walmart recently expanded its grocery delivery services to reach over 40 per cent of American households, complementing its rollout of curbside grocery pick-up to compete with Amazon’s Prime Now two-hour delivery service.
“Amazon will do everything in its power to outbid Walmart from buying a majority stake in Flipkart,” a top gun from the e-tailer told BusinessLine . “By offering a premium of 10-20 per cent over Walmart’s bid, Amazon will free itself from fighting a bruising battle for market leadership where it stands to lose millions of dollars in discounts as nearly 90 per cent of its customers are also Flipkart’s customers. Investors are only loyal to the party that gives them the most attractive offer. So, it’s just a question of who offers a better deal at the right time,” he said.
Flipkart pipped Future Group’s Kishore Biyani to the post on the Jabong buyout for $70 million, transferring money into the bank in 24 hours, while Biyani lost out because he asked for a seven-day window, say sources.
Amazon’s initial talks to acquire Flipkart, 18-24 months after it entered the India market, fizzled out as the latter wanted $2 billion and did not succumb to Amazon’s $1 billion offer. In hindsight, Amazon would have saved big money had it agreed to Flipkart’s terms, said a source who was involved with those initial talks.