Walmart buys 77% of India's Flipkart for $16bn

Mae Love
May 10, 2018

United States retail giant Walmart today announced that it has agreed to take 77 percent stake in Indian e-commerce player Flipkart for $16 billion.

Shares of Walmart fell 4 percent in afternoon trade after opening at a seven-month low as the company warned it expects the deal to shave fiscal 2019 earnings by 25-30 cents per share if it closes before the end of the second quarter.

The deal all but assures an ongoing global rivalry between Walmart and Amazon.

Flipkart sells consumer goods ranging from soaps to smartphones and clothes, and gives Walmart access to an e-commerce market that could be worth $200 billion a year within a decade, according to Morgan Stanley. "With regards to Flipkart, it's not officially announced yet". Both had repeatedly declined to comment on the talks.

"This investment is of huge 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", Bansal added.

The announcement came a day after Amazon said it was injecting an extra $386 million into its Indian subsidiary.

Amazon CEO Jeff Bezos has committed more than US$5 billion to grabbing a big slice of India's e-commerce pie after failing to make inroads in China. "We consider there was tremendous development potential for e commerce in India and important opportunity for numerous players to succeed from India's varied, domestic industry".

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Walmart CEO Doug McMillon and Flipkart co-founder and CEO Binny Bansal in Bangalore on Wednesday.

Reuters had previously reported that Bansal and SoftBank would sell their entire stakes in Flipkart.

Meanwhile, Forrester Research said in a March report that the online retail market in India is anticipated to grow 2.92 percent annually to cross $72 billion in 2022, representing almost 5.7 percent of overall retail sales. In 2017, the company thought it would make more sense to join forces with Flipkart than continuing to play by itself in one of the fastest growing markets for online retail globally.

The transaction is expected to be finalized later this calendar year, pending regulatory approval in India.

Financials filed with the Registrar of Companies, however reveal that while the losses rose in the period between December, 2009 (Rs 151 crore) to December, 2013 (Rs 532 crore), the company managed to reduce its losses in the following two years. Flipkart was valued at $16 billion in 2015, giving each Bansal a $1billion stake at the time thanks to the 7.5 per cent they each held.

Both Walmart and Amazon have pushed hard to catch up to Flipkart and to be the first major USA retailer to establish a substantial foothold in the country. It now operates 20 wholesale clubs in India that serve small businesses. "This investment aligns with our strategy, and our goal is to contribute to India's success story as we grow our business".

Walmart executives said they were particularly interested in PhonePe, Flipkart's mobile payments app, along with its fashion sites Myntra and Jabong.

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