Published: Thu, May 10, 2018
IT | By Laverne Higgins

Walmart buys 77% of Flipkart for $16 billion

Walmart buys 77% of Flipkart for $16 billion

The buyer was United States bricks and mortar retailer Walmart, which on Wednesday announced that it had acquired 77% of Indian e-commerce firm Flipkart for $16 billion, valuing the e-commerce player at over $20 billion.

But the announcement of the largest M&A deal in the country has not brought the 51-year-old Walmart CEO any closer to meetings with senior Modi government officials.

Flipkart sells consumer goods ranging from soaps to smartphones and clothes, and gives Walmart access to an e-commerce market that could be worth $200bn a year within a decade, according to Morgan Stanley. Why we think there's one in the works: The outfit registered its last giant fund - a $2.5 billion vehicle - with the SEC a little less than 2.5 years ago, and Tiger puts its capital to work. It added that discussions were on with other potential investors who may join the next round of funding. The remainder of the business will be held by some of Flipkart's existing shareholders, including Flipkart co-founder Binny Bansal, China's Tencent Holdings, Tiger Global Management and Microsoft, the company said.

Walmart will retain Flipkart's management led by co-founder Binny Bansal and CEO Kalyan Krishnamurthy. In less than a year, the company is now seeking to sell its Flipkart stake for $1.1 billion.

Walmart was engaged in a race with e-commerce giant Amazon to acquire majority stake in Flipkart, and the two firms have been negotiating a deal for more than a year.

Walmart has been attempting to enter the Indian retail market for more than 15 years but the government's regulation of not allowing Foreign Direct Investment (FDI) into multi-brand retail proved as a hindrance for the U.S. retail giant.

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The deal will help the USA retail giant - which has seen consumers migrate to online platforms like those run by Amazon - get a vantage position in e-commerce space in the worlds fastest-growing economy.

Despite its size and global clout, Walmart has found it necessary to forge alliances in its battle against Amazon, which past year bought Whole Foods Market to gain a foothold in the U.S. Walmart's Walton family can afford to pay a premium for Flipkart.

When bigger players with deep pockets enter the ecosystem, then everyone gets benefited - newer, most cutting-edge technologies are introduced, larger deals are finalized, and money seeps into the system.

The $16 billion controlling stake, announced Wednesday, is the largest acquisition yet by the world's largest retailer. However, this huge growth was not enough as its competitor Amazon overtook Walmart's e-commerce growth in the fourth quarter of 2017. The deal between Walmart and Flipkart is going to be challenging as the track record shows that profit margins of Jet.com dipped after its acquisition.

"It will adversely affect both online and offline retailers as the Indian e-commerce space is already crippled with malpractices and predatory pricing", Pravin Khandelwal, the body's secretary general, told AFP.

Now, with Google on their side, and Flipkart in their pocket, Walmart can trigger a new wave of discounts and offers never seen before in the Indian e-commerce sector.

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