Walmart has agreed to purchase a roughly 77% stake in Indian e-commerce company Flipkart for $16 billion, in what is the country’s biggest foreign direct investment to date, and marking the US retail giant’s boldest attempt yet to take on Amazon online as well as giving it access to a booming market it has so far failed to crack.
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.
The previous attempts by Walmart, the world’s largest retailer, to succeed in India have faltered and it has now turned to a homegrown internet player’s network, technology and talent as the ticket to one of the world’s fastest growing economies.
The acquisition, Walmart’s biggest yet, is as much an acknowledgement that it would spare no expense to ramp up its fight with Amazon as it is a testament to the thriving retail industry in India. Morgan Stanley has estimated the Indian ecommerce market to be worth $200 billion in a decade.
“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,” said Doug McMillion, the chief executive officer of Walmart, who arrived in India on Wednesday to close the deal.
Walmart will infuse retail expertise and its knowledge of the grocery and merchandise supply chain management in Flipkart. Walmart will also use Flipkart to build retail infrastructure especially in rural India, and also set up and agricultural supply chain.
Tencent and Tiger Global will continue on the Flipkart board, joined by new members from Walmart. The final make-up of the board has yet to be determined, but it will also include independent members. The board will work to maintain Flipkart’s core values and entrepreneurial spirit, while ensuring it has strategic and competitive advantages.
The deal would be funded with existing cash reserves and new debt, the company said. Walmart's purchase of a controlling stake in Flipkart includes about $2 billion of new equity funding and the entry of Google as a key shareholder.
Passage to India
Walmart initially entered the Indian market in 2007 through a joint venture with India’s Bharti Enterprises, years before Amazon debuted there. That joint venture was called off in 2013 and its presence in India has remained largely static since then, at least in part due to restrictions around foreign investment in physical retail in India.
Flipkart, the first billion-dollar Indian e-commerce company, sells 8 million products across 80 plus categories. It has 100 million registered users, 100,000 sellers, 21 warehouses, 10 million daily page visits.
The Flipkart acquisition eclipses Walmart’s purchase of
Jet.com in August 2016 for $3.3 billion. That acquisition was then seen as a strategic decision by Walmart to compete with Amazon online.
The Amazon Factor
The Flipkart deal represents a direct challenge to Amazon in Asia’s third-largest economy. India is a crucial market for Amazon as well. The company has been pumping in billions of dollars as it competes with the Flipkart and a clutch of smaller players for bigger share of the Indian ecommerce market.
Just days before the impending acquisition of a controlling stake in Flipkart by US retail giant Walmart, a unit of Amazon India received funding of Rs 2,600 crore from its American parent.
Amazon has also committed to investing $5 billion in India as it expands into online grocery delivery, a segment it expects to account for over half of its business in the country in the next five years, said a recent Reuters report.
Amit Agarwal, the India head of Amazon India, was quoted as saying in the report that that groceries and goods such as creams, soaps and cleaning products, were already the largest product category on Amazon in terms of number of units sold in India.
The deal is expected to close later this calender year.
Earlier, Amazon had emerged as a contender for a majority stake in Flipkart. The global etailer had made a formal offer to buy a 60% stake in Flipkart on Monday. With inputs from agencies.
Read our comprehensive coverage of the deal here.