Walmart seals Flipkart deal for $16 billion, beating Amazon

US retail giant Walmart today confirmed the company’s $16 billion deal to buy Indian e-commerce major Flipkart.

SoftBank Group CEO Masayoshi Son has confirmed that the company has sold its 20 percent equity stake in Indian e-commerce company Flipkart to retail giant Walmart, Reuters reported.

The $16 billion deal for roughly 77 percent stake is the largest acquisition yet for Walmart, and also the biggest such transaction in the global e-commerce market.

Flipkart co-founder Binny Bansal, China’s Tencent Holdings, Tiger Global Management and Microsoft will hold the balance 23 percent stake.

Walmart said it expects a negative impact to FY19 EPS of approximately $0.25 to $0.30, which includes incremental interest expense related to the investment.

Walmart said it will bring more investors. Walmart expects to retain Flipkart brand in India. Walmart did not talk about the organization structure for Flipkart.

Earlier media reports said Flipkart co-founder Binny Bansal is expected to take on the role of Chairman, while CEO Kalyan Krishnamurthy will remain in his role.

Flipkart’s supply chain arm, eKart, serves more than 800 cities, making 500,000 deliveries daily. Flipkart posted GMV of $7.5 billion and net sales of $4.6 billion representing more than 50 percent year-over-year growth in both cases during the last fiscal.  Walmart IndiaSoftBank, through its Vision Fund, invested $2.5 billion in Flipkart and that stake will be worth about $4 billion in the deal, Son told a press briefing on Wednesday, according to Bloomberg.

The world’s largest retailer will invest $2 billion in fresh capital into the online retailer at a valuation of $21 billion and buy the rest of the stake from existing Flipkart investors at a valuation of $17-18 billion, Mint reported.

Flipkart co-founder Sachin Bansal is also likely to sell his entire 5.5 percent stake in the company for $1 billion. Sachin Bansal is expected to leave the company.

The deal has prompted Amazon, the main rival of Flipkart, to enhance investments in India. Amazon recently infused Rs 2,600 crore in its Indian unit to strengthen its war chest against rival Flipkart, PTI reported.

“As India’s fastest growing e-commerce player with a long-term commitment to make e-commerce a habit for Indian customers, we continue to invest in the necessary technology and infrastructure to grow the entire ecosystem”, said an Amazon India spokesperson.

Adrian Lee, research director, Gartner, said: “We 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.”

Competition will be getting more aggressive as Amazon counter offers Walmart for a stake in Flipkart. Both have their own sizeable cash reserves, and the outcome in India will determine the access to its growing middle class consumers for dominance, outside of the U.S.

Smaller online market companies constantly face a problem of scaling up their operations. The smaller players in many cases are more agile and open to new business models. They should concentrate on specialization within their domains to build up a valuable cache of users seeking differentiated retail experiences.

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