In what could be termed as the largest ecommerce acquisition in the world, Walmart Inc. on Wednesday announced its high-profile acquisition of Flipkart for $16 billion for a valuation of over $20 billion.
The Bentonville company has acquired 77% of the Bengaluru-based company.
Sachin Bansal, who had co-founded Flipkart with Binny Bansal in 2007, would exit the company after the deal. Japan’s SoftBank, an investor, will also exit the company by selling its entire 20 per cent stake in Flipkart.
Walmart’s investment includes $2 billion of new equity funding, which will help Flipkart accelerate growth in the future.
India’s first billion-dollar e-commerce company, Flipkart, sells 8 million products across 80-plus categories. It has 100 million registered users.
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.
While the immediate focus will be on serving customers and growing the business, Walmart supports Flipkart’s ambition to transition into a publicly-listed, majority-owned subsidiary in the future, the company said in an official statement.
Who are the advisers of the deal?
JP Morgan Securities LLC is acting as the lead financial advisor for Walmart, along with Barclays, with Hogan Lovells, Shardul Amarchand Mangaldas & Co. and Gibson, Dunn & Crutcher LLP as outside counsel to Walmart. Goldman Sachs & Co. LLC acted as exclusive financial advisor to Flipkart. Gunderson Dettmer LLP, Khaitan & Co., Allen & Gledhill LLP and Dentons Rodyk & Davidson LLP provided legal counsel to Flipkart.
How will the deal benefit Flipkart?
For Flipkart, the deal would give it additional capital and retail muscle to fight rival company Amazon. Together, Flipkart and Amazon control majority of the country’s $30 billion e-commerce market that is forecast to grow to $200 billion by 2026 (Morgan Stanley estimate).
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 ace competition, Amazon.
With the investment, Flipkart will leverage Walmart’s omni-channel retail expertise, grocery and general merchandise supply-chain knowledge and financial strength, while Flipkart’s talent, technology, customer insights and agile and innovative culture will benefit Walmart in India and across the globe.
How the deal will benefit Walmart?
The Flipkart deal will offer a big advantage in terms of presence in the Indian e-commerce market. Acquiring a stake in Flipkart will help Walmart tap into the India’s retail market without building stores. India is the next big potential prize for global retailers after the US and China, where foreign retailers have made little progress against Alibaba Group Holding.
“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. This should not be observed without mention to Alibaba Group’s intent to become the third player in India,” said Adrian Lee, research director at Gartner, in a statement.
Meanwhile, Amazon – Flipkart’s biggest rival in India – has committed to invest over $5 billion in India.
Will it revolutionize Indian retail?
The American giant Walmart, with huge experience in a first-world economy, will transform Indian retail with low prices and a vast variety of consumer goods. Amazon’s fight-back will ensure that prices remain competitive.
With the coming of Walmart, it will benefit farmers but not in the short-term.
Job creation as the major agenda. Here’s how:
As Walmart scales in India, the company will continue to partner to create sustained economic growth across agriculture, food and retail. Future investments will support national initiatives and will bring sustainable benefits to the country.
- Job creation, as plans would create jobs through development of supply chains, commercial opportunity and direct employment.
- Supporting small business and ‘Make in India,’ through direct procurement as well as increased opportunities for exports through global sourcing and eCommerce. Among other initiatives, Walmart will partner with kirana owners and members to help modernize their retail practices and adopt digital payment technologies.
- Support farmers and develop supply chains through local sourcing and improved market access.
- Reduced food waste by improving waste management practices and investing in supply chains, especially cold storage.
Earlier, according to a report in the CNBC TV 18, rival Amazon was also in the queue for buying 60% stake in Flipkart, however, the deal didn’t fructify.
What the founders have to say about the development….
“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 eCommerce in the market. 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,” said Doug McMillon, Walmart’s president and chief executive officer. “
“Our investment will benefit India by providing quality, affordable goods for customers, while creating new skilled jobs and fresh opportunities for small suppliers, farmers and women entrepreneurs.” – Doug McMillon, CEO Walmart. pic.twitter.com/8izGoP3nYX
— Walmart Newsroom (@WalmartNewsroom) May 9, 2018
“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, Flipkart’s co-founder and group chief executive officer.
Judith McKenna, president and chief executive officer of Walmart International said, “This investment aligns with our strategy and our goal is to contribute to India’s success story, as we grow our business. Over the last 10 years, Flipkart has become a market leader by focusing on customer service, technology, supply chain and a broad assortment of products.”
Founded in 2007, Flipkart has led India’s eCommerce revolution. With well-known platforms such as Myntra, Jabong and PhonePe, Flipkart is uniquely positioned to leverage its integrated ecosystem, which is defined by localized service, deep insights into Indian customers and a best-in-class supply chain. In the fiscal year ended March 31, Flipkart recorded GMV of $7.5 billion1 and net sales of $4.6 billion representing more than 50 percent year-over-year growth in both cases.
Last year, Kalyan Krishnamurthy, previously an executive in Flipkart investor Tiger Global, took over as Flipkart CEO. Binny Bansal became CEO of the whole group, which includes fashion portals Myntra-Jabong, payments unit PhonePe and logistics firm Ekart.
Walmart had entered India in 2009 through a joint venture with Bharti Enterprises and later took full control of that venture in 2013. It currently operates about 20 wholesale stores in the country that serve small businesses.
Currently, Walmart India operates 21 Best Price cash-and-carry stores and one fulfillment center in 19 cities across nine states in India, with more than 95 percent of sourcing coming from India.