Walmart has outbid Amazon to take a majority stake in India’s largest online retail business, Flipkart.
Walmart will pay US$16 billion for a 77 per cent stake in Flipkart Online Services, effectively valuing the business at $21 billion.
Venture capital investor Tiger Global will get $6 billion for selling most of its stake, representing the $11 billion fund’s largest return on an investment yet. It will maintain a 5 per cent stake in Flipkart along with a seat on the board.
The deal makes instant billionaires of the two founders of Flipkart, Binny and Sachin Bansal, (they are unrelated) and will cost the descendants of Walmart’s founder Sam Walton about $4.3 billion off their fortune. (But they won’t be left slumming it: their combined net worth is estimated by Bloomberg at around $142 billion.)
The Bansals once worked for Amazon and quit their jobs to set up Flipkart. Multiple rounds of capital raising had seen their stake reduced to about 5 per cent each. Sachin will reportedly sell his entire stake to Walmart, netting about $1 billion before capital gains tax cuts 20 per cent off that. Binny will reduce his stake.
The sheer scale of the deal surprised many retail analysts, as did the victor of the battle between Amazon and Walmart.
According to financial press, the board of Flipkart opted for Walmart because it believed it was more likely to gain Indian regulatory approval than a sale to Amazon which is a direct competitor to Flipkart.
The deal includes a further $2 billion investment in equity funding to speed Flipkart’s growth.
Walmart currently has 21 stores in India. By adding on Flipkart’s $4.6 billion in annual sales (that figure from the year to March 31), it will gain a substantial cornerstone stake in the fast-developing nation’s total retail market.
Walmart’s president and CEO Dough McMillion said Flipkart’s minority holders would be “key strategic and technology partners” that would “provide Flipkart with enhanced strategic and competitive advantage”.
“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 e-commerce in the market,” said McMillon.
The deal signals headwinds for Amazon, which was reported to also be in the running to purchase Flipkart in a bid to bolster its own presence in India.
Amazon already has a sizable business in the country, accounting for more than a quarter of e-commerce spend, according to Euromonitor. E-commerce is still a relatively small portion of overall retail spending in India but is expected to grow at four times the pace of the broader market in the coming years.