World’s largest retailer Walmart Inc is close to clinching a deal to buy a majority stake in Flipkart for roughly $15 billion, according to sources.
The deal, which will see some of the biggest investors in Flipkart offloading their stake in the country’s largest e-commerce company, could be announced any day now, sources with direct knowledge of the development said.
Japan’s SoftBank Group Corp and Tiger Global Management are said to be selling almost all of their about 20% stake each in Flipkart.
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Walmart will likely end up with 60% to 80% of Flipkart, valuing the company at about $20 billion, they said.
Flipkart was valued at $12 billion last year, according to researcher CB Insights.
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The deal will help the United States retail giant - which has seen consumers migrating to online platforms like those run by Amazon - get a foothold in the world’s fastest growing economy with a market of 1.3 billion people. The Flipkart model would help the bricks-and-mortar retail giant to take on its global rival Amazon.
For Flipkart, the deal would give it additional capital and retail muscle to fight Amazon.
Together, Flipkart and Amazon control majority of India’s $30 billion e-commerce market that is forecast to grow to $200 billion by 2026 (Morgan Stanley estimate).
E-mails sent to Walmart and Flipkart remained unanswered. A SoftBank spokesperson, in an e-mailed statement, said the company does not comment on ongoing discussions or speculations.
Amazon was also said have put in an aggressive offer to buy 60% of Flipkart but the board of the Indian firm is said to be favouring the Walmart offer, sources said.
Co-founder exiting company?
There are reports that Sachin Bansal, who co-founded Flipkart with Binny Bansal 11 years ago, could be exiting the company by selling his over 5%. However, this could not be independently confirmed.
South Africa’s Nasper Ltd. is largest shareholder in Flipkart after SoftBank and Tiger Global. It, along with other existing shareholders Tencent Holdings Ltd and Microsoft Corp, are expected to retain small stakes in Flipkart post the Walmart deal.
SoftBank, which had invested $2.5 billion in Flipkart, had previously pushed for a merger of rival Snapdeal.com with Flipkart. The deal, however, fell apart after Snapdeal’s founders decided against the deal. The Japanese conglomerate has already written off its investment in Snapdeal.
Softbank, thereafter, went and invested in Flipkart last year.
The deal with Walmart will involve both primary and secondary shares, the sources said.
One of the persons said possible scrutiny from the Competition Commission of India (CCI) as well as risks related to sharing competitive data as part of due diligence were some of the reasons for Flipkart investors and management favouring a deal with Walmart and not Amazon, even though the rival’s bid was slightly higher.
Amazon's offer
Amazon is believed to have offered Flipkart a higher valuation of about $22 billion, along with a break up fee of $2 billion, compared to Walmart’s $18-20 billion valuation of the Bengaluru-based company.
According to Greyhound Research Chief Analyst and CEO Sanchit Vir Gogia, Walmart adding Flipkart to its kitty will act like a shot in the arm and give it a significant up against Amazon.
“Flipkart shareholders also stand to gain a better outcome on their returns [as part of the deal with Walmart] and the founders and key management get a bigger stake in the game given higher reliance on them to successfully run and grow the commerce business,” he added.
Intense battle for leadership in India
Amazon and Flipkart are locked in an intense battle for leadership in the Indian market and have pumped in billions of dollars towards marketing and setting up infrastructure in the country.
Amazon, on its own, has committed investments to the tune of $5 billion for its operations in India. In a recent investor call, Amazon CFO Brian Olsavsky said the company would continue to invest in India as it sees “great progress” with both sellers and customers here, even though as the US e-tailing giant had registered a loss of $622 million from international operations in the first quarter of 2018.
US-based fund house Valic, which holds around 4,502 shares in Flipkart, and Vanguard World Fund, which has four lakh shares, have pegged the valuation of the e-commerce company between $15 billion and $19 billion. Flipkart was last valued at about $12.5 billion when it raised $2.5 billion from Masayoshi Son’s SoftBank last year.