The world’s largest retailer Walmart Inc is close to clinching a deal to buy a majority stake in Flipkart for roughly $15 billion. The Walmart is expected to announce the investment in Flipkart on Wednesday.
Japan’s SoftBank Group Corp and Tiger Global Management are learnt to be selling almost all 20 per cent stake each in Flipkart. Then Walmart will likely end up with rest of 60-80 per cent of Flipkart, valuing the e-retailer firm at about $20 billion, according to the sources.
As per media reports, co-founders Sachin Bansal, and Binny Bansal of Flipkart who started the company 11 years ago, could be on the way out by selling his over 5 per cent stake. However, this could not be confirmed.
Flipkart was valued at about $12 billion last year, according to researcher CB Insights.
The deal will help the US retail giant — which has seen consumers migrate to online platforms like those run by Amazon — get a foothold in the world’s fastest growing economy with a market of 1.3 billion people. The Flipkart model would help the bricks-and-mortar retail giant to take on its global rival Amazon. For Flipkart, the deal would give it additional capital and retail muscle to fight Amazon.
Together, Flipkart and Amazon control majority of India's $30 billion e-commerce market that is forecast to grow to $200 billion by 2026 (Morgan Stanley estimate).
“Amazon was also said have put in an aggressive offer to buy 60 per cent of Flipkart but the board of the Indian firm is said to be favouring the Walmart offer,” sources said.
South Africa's Nasper ltd is largest shareholder in Flipkart after SoftBank and Tiger Global. It, along with other existing shareholders Tencent Holdings ltd and Microsoft Corp, are expected to retain small stakes in Flipkart post the Walmart deal.
SoftBank, which had invested $2.5 billion in Flipkart, had previously pushed for a merger of rival Snapdeal.Com with Flipkart. The deal however fell apart after Snapdeal's founders decided against the deal. The Japanese conglomerate has already written off its investment in Snapdeal. Softbank, thereafter, went and invested in Flipkart last year.
“The deal with Walmart will involve both primary and secondary shares. There could be possible scrutiny from the Competition Commission of India (CCI) as well as risks related to sharing competitive data as part of due diligence were some of the reasons for Flipkart investors and management favouring a deal with Walmart and not Amazon, even though the rival's bid was slightly higher,” sources said.
Amazon is believed to have offered Flipkart a higher valuation of about $22 billion, along with a break-up fee of $2 billion, compared to Walmart's $18-20 billion valuation of the Bengaluru-based company.
According to Greyhound Research Chief Analyst and CEO Sanchit Vir Gogia, Walmart adding Flipkart to its kitty will act like a shot-in-the-arm and give it a significant up against ace competition, Amazon. “Flipkart shareholders also stand to gain a better outcome on their returns (as part of deal with Walmart) and the founders and key management get a bigger stake in the game given higher reliance on them to successfully run and grow the commerce business,” he added.