Flipkart is now a part of Sam’s club

Ending nearly two years of negotiations, US-based Walmart Inc on Wednesday said it has signed a definitive agreement to invest approximately $16 billion for an initial stake of about 77 per cent in Indian e-commerce giant Flipkart to become the largest shareholder in the Flipkart group.

With this acquisition, Flipkart’s total valuation stands at a little over $21 billion, turning its two co-founders, Sachin and Binny Bansal (unrelated to each other), into billionaires. However, Walmart’s shares dropped nearly 5 per cent before the opening bell in the US, wiping out over $10 billion in market cap.

“India is one of the most attractive retail markets in the world given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market,” said Doug McMillon, Walmart’s President and Chief Executive Officer.

Walmart Inc, headquartered in Bentonville, Arkansas, was founded by Sam Walton and is controlled by the Walton family.

A mix of debt and cash

Walmart’s investment includes $2 billion of new equity funding, first reported by BusinessLine on April 25. This funding will be used to help Flipkart accelerate growth in the future.

While the immediate focus will be on serving customers and expanding the business, Walmart said it supports Flipkart’s ambition to transition into a publicly-listed, majority-owned subsidiary in the future.

The entire deal — considered to be the largest e-commerce deal in the world — will be financed through a mix of debt and cash on hand. Walmart is also willing to let other potential investors pick up stakes in Flipkart during subsequent rounds, which will see its stake go down, while retaining majority control.

The remainder of the 23 per cent stake will be held by some of Flipkart’s existing shareholders, including co-founder Binny Bansal, who will be the group CEO, Tencent Holdings Ltd, Tiger Global Management LLC and Microsoft Corp. SoftBank, Accel Partners, Naspers, and IDG have exited the company with this deal.

Another co-founder, Sachin Bansal, has completely exited the company by selling his entire 5.5 per cent stake.

Tencent and Tiger Global will continue on the Flipkart board, joined by new members from Walmart.

While the final make-up of the board is yet to be determined, it will also include independent members. The deal is expected to close later this calendar year, subject to regulatory approval.

Meanwhile, eBay has notified Flipkart and Walmart that it intends to sell its holdings in Flipkart, which will represent gross proceeds of approximately $1.1 billion. The company said it would also be “ending our current strategic relationship with Flipkart, which includes unwinding our commercial agreements with Flipkart and terminating Flipkart’s licence to use the eBay.in brand”.

One, but separate

Walmart has promised Flipkart employees that it will have an arm’s length approach to operations. Walmart and Flipkart will maintain distinct brands and operating structures, while continuing to leverage each other’s strengths.

Currently, Walmart India operates 21 Best Price cash-and-carry stores and one fulfilment centre in 19 cities across nine States. More than 95 per cent of its sourcing is from India. Krish Iyer, President and CEO of Walmart India, will continue to lead that part of the business. Ananth Narayan will continue to be the CEO of Myntra and Jabong, and Sameer Nigam will continue as CEO of PhonePe.

“As a company, we are transforming globally to meet and exceed the needs of customers and we look forward to working with Flipkart to grow in this critical market,” said Walmart CEO McMillon. “We are also excited to be doing this with Tencent, Tiger Global and Microsoft, which will be key strategic and technology partners. Our investment will benefit India, providing quality, affordable goods for customers, while creating new skilled jobs and fresh opportunities for small suppliers, farmers and women entrepreneurs” he added.

Commenting on the development, Adrian Lee, Research Director, Gartner said: “Expect the status quo to remain within the year after the Flipkart-Walmart deal is completed. This is an extension of Walmart’s global expansion strategy and this should not be observed without mention of Alibaba Group’s intent to become the third player in India.”

“This investment is of immense importance for India and will help fuel our ambition to deepen our connection with buyers and sellers and to create the next wave of retail in India,” said Binny Bansal.

Stating that e-commerce is still a relatively small part of retail in India, with great potential to grow, the co-founder said Walmart is the ideal partner for the next phase of the company’s journey. Currently, online sales in India are worth about $19.6 billion.

COMMENT NOW