Delhi/Bengaluru: Walmart Inc. has agreed to pay $16 billion for a 77% stake in Flipkart, valuing India’s largest start-up at about $21 billion in what is one of the biggest acquisitions in the country.
The deal will redraw the retail landscape in India as Walmart takes its battle in the US with arch-rival Amazon to the world’s fastest growing major economy. It will also give a massive boost to entrepreneurship and the start-up ecosystem in India, which has struggled to provide exits.
The buyout, which is Walmart’s biggest acquisition and the biggest e-commerce deal globally, marks the end of an era as Flipkart co-founder and chairman Sachin Bansal will leave the company and sell his 5.5-6% stake in the company. Flipkart’s other founder Binny Bansal will continue as Flipkart group CEO and Kalyan Krishnamurthy will retain his position as Flipkart CEO.
The deal will need to be approved by India’s anti-trust regulator. Walmart’s journey in India hasn’t been smooth. In 2007, the world’s largest retailer set up a joint venture with Bharti Enterprises Ltd for wholesale stores. Bharti exited the joint venture six years later. 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 e-commerce in the market,” Walmart chief executive officer Doug McMillon said. Walmart brings to the table its experience of running a big retail business globally. It plans to help Flipkart in scaling its business fast and at the same time bring in cost efficiencies.
Singapore-registered Flipkart, which owns fashion retailers Myntra and Jabong and the mobile payments app PhonePe, has seen its valuation jump to $21 billion from just $10.2 billion a year ago.
Walmart will invest $2 billion directly into Flipkart and buy the rest of its stake from existing Flipkart investors including SoftBank Group, Accel Partners, Naspers and eBay Inc. Tiger Global Management, Flipkart’s most influential shareholder, is also selling much of its 20% stake. According to a person familiar with the matter, Walmart may invest more money into Flipkart after a year. “It’s interesting as we are now seeing the converging of offline and online,” said Kishore Biyani, chief executive officer, Future Group.
The sale will lead to windfall gains for Flipkart’s earliest investors Accel, Tiger Global and Naspers. Tiger Global partner Lee Fixel, who was the driving force behind the deal, has now established himself as one of the most important start-up investors in the world.
Flipkart’s largest shareholder SoftBank will sell its 20%-plus holding entirely over time, marking a massive gain on a $2.5 billion investment only made last August.
Binny Bansal, Tencent Holdings, Tiger Global and Microsoft will retain some portion of their shareholdings in the company. Tencent and Tiger Global will retain their board seats; Walmart will add new members to Flipkart’s board including independent directors.
JP Morgan was the lead financial adviser for Walmart, along with Barclays. Law firm Shardul Amarchand Mangaldas & Co. was one of the legal advisers to the American company. Flipkart was advised by Goldman Sachs Group Inc.
Walmart said it is in talks to bring new investors into Flipkart. One person familiar with the matter said that Flipkart is in discussions with Google, Intel and existing investor Microsoft to raise more capital.
Walmart said that the Flipkart Group recorded gross merchandise value of $7.5 billion for the year ended 31 March, an increase of 50% over the previous year. Flipkart’s net sales also jumped by 50% to $4.6 billion.
Walmart, which will retain the Flipkart brand, said it supports “Flipkart’s ambition to transition into a publicly listed, majority-owned subsidiary in the future”. But a listing of Flipkart is unlikely any time in the next few years, given that the company will need to keep spending lots of cash to keep its leadership position amid the battle with Amazon India.
Analysts expect Amazon to increase its $5 billion commitment toward expanding its India business.
Walmart’s wholesale business in India will continue to be led by Krish Iyer. The company operates 21 Best Price cash-and-carry stores and one fulfilment centre across nine states.
At 9pm IST, Walmart shares were trading down 4.04% on the New York Stock Exchange.
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