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The merry-go-round is finally over; Walmart to buy a majority stake in Flipkart with a little help from Alphabet

Sahil Bhalla | Updated on: 4 May 2018, 16:54 IST
(Arya Sharma/Catch News)

Indian online retailer Flipkart's board has approved an agreement to sell an about 75% stake in the company, according to a report from FactorDaily. The merry-go-round of the past couples of months seems to have finally come to an end. Walmart, the US retail conglomerate is spending at least "$14.6 billion in the cash-and-stock buyout". Alphabet, Google's parent company, is also participating in the deal with a $3 billion investment.

Kalyan Krishnamurthy will stay on as the chief executive and other top executives are expected to follow suit. Executive Chairman Sachin Bansal, however, may be on his way out from the company he set up over a decade ago along with Binny Bansal.

Under this deal, SoftBank will be selling its entire 20-plus-percent stake it holds in Flipkart through an investment fund but investors like  Tencent, Microsoft and Tiger Global are not looking to cash out completely.

FactorDaily sources indicated that Walmart has valued Flipkart between $20 and $22 billion. “Everything has been finalized… the papers have been signed by both the parties,” a source told FactorDaily, following the latest round of negotiations. A final deal is expected to be announced within the next 10 days.

The sources further said that Walmart, in its initial stages in India, will focus on the grocery market and that 50% of the initial funding will be fed directly into the food and grocery supply chain. “Cash component will be close to 55%, which will mark the exit of some of the largest investors in Flipkart,” a second source told FactoryDaily.

The deal with Flipkart will see Walmart scoring one over rival Amazon. Amazon has had a number of counter-offers rebuffed by Flipkart's board. Flipkart's board decided that a deal with Walmart is far more likely to win over the necessary regulatory approval. This is simply because Amazon, the no.2 e-commerce operator in the country, will virtually have a monopoly in India if the deal had gone in their favour.

For now, Walmart is n the driver's seat, and unless there are some unforeseen hurdles, Amazon is out of the running.

Amazon has pledged up to $5.5 billion to the country in a bid to outdo Flipkart and the American company had been gaining as of late. Flipkart will benefit most from Walmart's deep pockets.

Walmart IPO

Walmart has indicated, to the board of Flipkart, that it intends to sell shares through an initial public offer (IPO) within the next three years. The IPO will only happen once Flipkart gets closer to profitability.

Flipkart not the first

Before Flipkart, Walmart had shopped for other e-commerce platforms like ShopClues and Snapdeal. Walmart, it seems, wanted to go for the biggest fish available. If Flipkart had been able to withstand the might of Amazon, then a Walmart-Flipkart company can do that and much more.

SoftBank

SoftBank, the company selling its entire 20-percent-plus stake in Flipkart, is expected to make $4 billion. This accounts for a 60% return-on-investment. Eight months ago, SoftBank had invested $2.5 billion in Flipkart.

For now, it seems that Walmart is about to go head-to-head with one of the biggest retailers the world has seen, Amazon, in the second most populous country in the world.

First published: 4 May 2018, 16:48 IST
 
Sahil Bhalla @IMSahilBhalla

Sahil is a correspondent at Catch. A gadget freak, he loves offering free tech support to family and friends. He studied at Sarah Lawrence College, New York and worked previously for Scroll. He selectively boycotts fast food chains, worries about Arsenal, and travels whenever and wherever he can. Sahil is an unapologetic foodie and a film aficionado.