Walmart Inc said on Wednesday it will pay $16 billion for a roughly 77% stake in Indian e-commerce firm Flipkart, and shares of the US retailer tumbled 4% on news of its largest-ever deal, an effort to compete with rival Amazon.com Inc in an important growth market.
Shares of Walmart fell 4% 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. It also expects Indian investments to shave 60 cents per share from earnings in fiscal 2020.
For Walmart, the acquisition opens a new front in its battle with Amazon, which had expressed interest in making a competing offer for a stake. Amazon now holds about 27% of India's burgeoning e-commerce market, according to Euromonitor, where Walmart only operates 21 cash-and-carry wholesale stores in the country that sell to businesses.
"We will not know for five to 10 years whether this transaction is successful strategically or financially," said Steven Roorda, portfolio manager with Minnesota-based Stonebridge Capital Advisors. "Walmart has a very poor track record operating outside North America," he said.
Jason Benowitz, senior portfolio manager at the Roosevelt Investment Group, said the deal probably will not do much to change market share between Flipkart and Amazon in India.
Sources had told Reuters they thought Amazon's approach to Flipkart was likely a ploy to complicate Walmart's bid.
"It would have been out of character for Amazon to write a check of that size to consolidate its market share in India, where it is already growing at a fast clip," Roosevelt's Benowitz said.
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.
Walmart expects the deal will play a part in "setting the company up for growth and profits in the future," Chief Executive Officer Doug McMillon said on a call with investors. McMillon has led Walmart's efforts to boost international business.
Walmart said Flipkart's logistics, payments and apparel businesses offer new areas of growth.
First Published: IST