The $16 billion acquisition of Flipkart by Walmart is set to redefine the India e-commerce space.
This is, perhaps, the single biggest effort by the U.S. retail major to take on arch rival Amazon. Both players have deep pockets. And, it will be interesting to see if they will engage in price war in the Indian marketplace. This will have serious implications for a number of small players.
Though the deal size is $16 billion, only $2 billion will come into the company’s kitty (in the form of purchase of fresh equity shares in Flipkart). An interesting side to the story could be how Alibaba of China, which has a stake in Paytm, realigns its game-plan for India in the context of Walmart’s foray. The deal is also likely to come under tax lens given the past episodes, which saw foreign firms acquire Indian companies through offshore transactions.
The Flipkart deal opens up a whole lot of interesting imponderables across a host of spheres. Significantly, it will also impact offline retailers. What kind of strategy re-jig offline retailers such as Reliance Retail, Future group et al would make? The coming days will see a lot more unfolding in this sphere. On the whole, Walmart’s entry into India is set to reconfigure the e-commerce ecosystem in a very big way.
Subject to regulatory approval in India, Walmart will pay approximately $16 billion for an initial stake of approximately 77 per cent in Flipkart, formally Flipkart Private Limited. The remainder of the business will be held by some of Flipkart’s existing shareholders, including Flipkart co-founder Binny Bansal, Tencent Holdings Limited, Tiger Global Management LLC and Microsoft Corp.
The salient features of the deal are:
1. Walmart’s investment includes $2 billion of new equity funding.
2. Walmart and Flipkart are also in discussions with additional potential investors who may join the round, which could result in Walmart’s investment stake moving lower after the transaction is complete.
3. Nevertheless, Walmart would retain clear majority ownership.
4. Tencent and Tiger Global will continue on the Flipkart board.
5. The final make-up of the board is yet to be determined. It will, however, include independent members.
6. Closing of the deal is expected later this calendar year, subject to regulatory approval.
7. To finance the investment, Walmart will use a combination of newly-issued debt and cash on hand.
8. Upon closing, Flipkart’s financials will be reported as part of Walmart’s international business segment.
9. If the transaction were to close at the end of the second quarter of this fiscal year, Walmart expects a negative impact to FY19.
The deal has elicited positive reactions form India Inc.
"Huge endorsement for India’s first e-tailing co. Capital intensive business that needs deep pockets which Walmart has," Biocon chief Kiran Mazumdar Shaw tweeted.
“Flipkart team has done an awesome job in bringing the world’s largest retailer to India. This is also a great endorsement of the large opportunity that Indian market presents as well as the mettle of the Indian entrepreneur. It also proves that there is a lot of money to be made in the Indian startup ecosystem,” Sanjay Sethi, Co-founder & CEO of ShopClues said.
