The much awaited $15 billion deal between world's largest retailer Walmart and India's e-commerce major Flipkart is all set to be announced today. We take a closer look at the all-important deal, and bring you 8 key things to know.
Walmart-Flipkart deal: The much awaited $15 billion deal between world’s largest retailer Walmart and India’s e-commerce major Flipkart is all set to be announced today. According to a Reuters report, Walmart’s biggest acquisition is history values Flipkart at above $20 billion. Notably, Walmart will look to own a roughly 60 percent stake, while Google’s parent Alphabet will get about 15 percent ownership of the online marketplace, the agency reported quoting sources. The deal is likely to value Flipkart at roughly $18 billion to $20 billion. According to an ET Now report, Alphabet will get a roughly 15 percent stake in the online marketplace for about $3 billion, the channel reported quoting sources. We take a closer look at the $15 billion deal, and bring you 8 key things to know about the deal.
Walmart preferred over Amazon
Jeff Bezos-run Amazon.com had made a formal offer for picking up a controlling stake in Flipkart, however, major Flipkart investors and the board preferred retail giant Walmart as a deal with Walmart would mean lesser regulatory hurdles due to its lack of India presence in India as compared to Amazon, according to a Bloomberg report. South Africa-based Naspers and Flipkart founders Sachin and Binny Bansal were too in favour af a deal with Walmart, the news agency reported.
Deal value upwards of $20 billion
The deal in which Walmart is likely to pick up a 70-75 percent stake for about $15 billion, will value Flipkart at above $20 billion. Walmart is also likely invest $2 billion directly by infusing fresh equity in the Bengaluru-based company, CNBC TV18 reported.
The deal structure
While the deal is expected to include $2 billion in new equity funding, and the remaining portion of the deal will be funded with existing cash reserves and new debt, CNBC TV18 reported citing sources. However, Walmart is likely to face headwinds on its per-share earnings after the deal. Arkansas-based Walmart will pick up a 75 percent stake in Flipkart, while Google’s parent Alphabet will get a roughly 15 percent stake in the online marketplace for about $3 billion. Further, Walmart is likely to take Flipkart public in three years.
Sachin Bansal to exit
Flipkart co- Sachin Bansal would exit after the Walmart deal is sealed, Reuters reported quoting sources. Last year, the Indian e-commerce major Flipkart had named Kalyan Krishnamurthy, a former executive of investor U.S. hedge fund Tiger Global Management, as the head of its core business, while Binny Bansal took the broader strategic role of group CEO. Notably, Sachin and Binny Bansal, founded Flipkart in 2007, after leaving their former employer Amazon. Reuters report added that that Walmart is expected to get three board seats at Flipkart and will also have a say in the appointments of the group’s finance, legal and compliance heads. Krishnamurthy and Binny Bansal will remain in their current roles after the deal, according to the sources.
Who sells how much
According to the currently available details, Flipkart’s existing shareholders China’s Tencent Holdings, and US-based Tiger Global Management, are likely to partial stakes in the company. However, according to a report by CNBC Tv18, investors will likely have the option of selling their stake to Walmart at a later date. “Other investors could participate in raising funds after the acquisition is closed, and Flipkart’s financials will be reported as part of Walmart international,” CNBC TV18 said. Notably, SoftBank, which owns about 21 percent stake in the company will exit completely, while Tencent Holdings and Tiger Global Management will continue to be represented on the board.
According to media reports, India’s tax authorities are keeping a close watch on Walmart’s acquisition of Flipkart. An Indian Express report had earlier indicated that if the deal goes through, a repeat of the infamous Vodafone tax case could be imminent. Notably, according to reports, tax authorities have sought details of the proposed transaction from Flipkart in Bangalore, and have also sent a letter to Walmart seeking further details about the shareholding patterns.
The deal could mean a setback for rival Amazon, even as top boss Jeff Bezos has planned to pump in $5.5 billion this year. Taking note of his India business, the world’s richest man Jeff Bezos said that Amazon.in is the fastest growing marketplace in India, and the most visited site on both desktop and mobile, according to comScore and SimilarWeb. In what is Walmart’s biggest deal in two decades, the deal will intensify rivalry in the space. Currently, Amazon.com holds 27 percent of India’s $30 billion e-commerce market.
Flipkart’s journey so far
Founded in 2007, Flipkart has clocked a turnover Rs 198.55 billion in fiscal 2017, according to Reuters. In 2011, Flipkart domiciled to Singapore, as it looked to woo foreign investors to fund rapid growth. The first billion-dollar Indian e-commerce company, Flipkart sells 8 million products across 80 plus categories. It has 100 million registered users, 100,000 sellers, 21 warehouses, 10 million daily page visits, reported Reuters.