The transaction will result in the largest exit for private equity and venture capital investors in India — they’re expected to collectively make about $14 billion by selling shares to Walmart. The transaction puts it ahead of the $14.6-billion Bharti-Indus Towers merger and the $12.9-billion Essar Oil-Rosneft transaction. Only the Vodafone-Idea merger was valued higher at $23 billion. Flipkart cofounder Sachin Bansal exits while the other cofounder Binny Bansal remains invested.
The early US market response didn’t seem too positive with Walmart dropping 4% as it lost $10 billion in market capitalisation to $242 billion. Amazon was up marginally by 0.3%, putting its market capitalisation at $779 billion. Walmart plans to use Flipkart’s expertise to expand globally and assured employees that its startup ethos will be nurtured and strengthened. “We hope we learn from you how to build an ecosystem, more about innovation and payments — we will help with sourcing, supply chain expertise,” Walmart chief executive Doug McMillon told Flipkart employees.
Flipkart Brand to Remain Distinct
“It is our intention to just empower you and let you run — speed matters, decisiveness matters,” Walmart CEO Doug McMillon told Flipkart employees in a town hall meeting.
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ET was the first to report on all the key twists in the Walmart-Flipkart saga from the overtures in September 2016 and the pivot toward seeking a majority stake in January 2018.
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Flipkart and Walmart said they are in discussions to rope in other investors, without specifying names. Google parent Alphabet is in talks to invest $1-2 billion in the company, ET had reported on April 27.
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The remaining 23% stake in Flipkart will be held by cofounder and group chief executive officer Binny Bansal, Chinese Internet conglomerate Tencent, investment firm Tiger Global and software firm Microsoft Corp.
“This investment is of immense importance for India and will help fuel our ambition to deepen our connection with buyers and sellers and to create the next wave of retail in India,” Binny Bansal said in the press release.
Exclusive: Paytm's Vijay Shekhar Sharma on Flipkart-Walmart deal
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WALMART VS AMAZON
The deal will pit Walmart and Amazon against each other in the Indian market, which will help boost the share of online in overall retail, experts said. “This allows Walmart to jump into a high-growth market, and results in two global players focusing on the growth of the Indian ecommerce market,” said Prasanto Roy, vice-president of Nasscom’s Internet Council. “The ecommerce fight ahead should be less about market share than about growing the market manifold.” Walmart also indicated that Flipkart will go in for an initial public offering (IPO) during an investor call but did not give a timeline.
Binny Bansal also told employees in an email on Wednesday that the company will continue to “remain focused on eventually becoming a publicly listed Indian tech leader”. The deal is expected to generate wealth in thousands of crores of rupees for founders, investors as well as several employees. It will give Walmart a firm foothold in the ecommerce market that it plans to leverage to enter more fully into the country’s retail ecosystem through close integration with the agri-commodities supply chain.
“This investment shows Walmart’s commitment to India’s growth story and its continued progress on the World Bank’s ease of doing business ranking,” said Rajneesh Kumar, senior vice-president at Walmart India. “There will be tremendous value that will be derived out of this investment by strengthening the back-end supply chain infrastructure and benefit of Indian farm community, which will multiply their income.”
GROCERY WAR
Walmart said Flipkart will leverage Walmart’s omni-channel expertise, grocery and supply chain knowledge and financial strength, raising the prospect of a fight with Amazon in the grocery category.
Some expressed regret that India hasn’t been able to develop its own Internet giants that can thrive in a hypercompetitive environment.
“I would have liked a native company to go on and become the Amazon and Alibaba of India,” Kalaari Capital managing director Vani Kola. “But given the capital needed and the lack of capital in India, and given that there is no moat or protection from the regulatory perspective, we have to look at the next best option.” It will also mean that overseas players will dominate the sector, much as in Europe where there are few homegrown companies that are market leaders.
“Indian ecommerce will now have Amazon, Walmart and Alibaba, which is exactly what the FDI (foreign direct investment) policy did not want,” said Shopclues cofounder and CEO Sanjay Sethi.
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(Updated with statement from Walmart)
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