Click-&-mortar set to pop deal pill

Walmart, the $500-billion retail giant, is all set to announce its much-anticipated deal to buy a controlling stake in home-grown e-commerce player Flipkart for $15 billion.

By Our Special Correspondent
  • Published 9.05.18
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Mumbai: Walmart, the $500-billion retail giant, is all set to announce its much-anticipated deal to buy a controlling stake in home-grown e-commerce player Flipkart for $15 billion.

The deal, which could be announced as early as Wednesday, will see Walmart and Google parent Alphabet Inc buying up to 75 per cent of Flipkart. The deal will value Flipkart at $20 billion.

Bentonville, Arkansas-based Walmart will acquire about a 60 per cent stake in Flipkart, while Alphabet will get a roughly 15 per cent stake in the online marketplace for about $3 billion, sources said.

The acquisition, which will be the country's largest in-bound deal, will see the exit (full and partial) of various investors in the Bangalore-based Flipkart that started as an online bookstore from a two-bedroom apartment in Koramangala, Bangalore in 2007.

"The deal has been sealed. It could be announced in a day or two," sources said.

According to a Reuters report, Flipkart will hold a townhall for employees on Friday where Doug McMillon, president & CEO of Walmart Inc, is likely to be present.

Industry observers tracking the development said, Flipkart chief executive Binny Bansal had held a closed-door meeting with the firm's top leadership at its Bangalore headquarters on Monday, and one added that Bansal said that Flipkart co-founder Sachin Bansal would exit after the Walmart deal is sealed.

Flipkart last year named Kalyan Krishnamurthy, a former executive of investor US hedge fund Tiger Global Management, as the head of its core business, while Binny Bansal took the broader strategic role of group CEO. Sachin Bansal remained as executive chairman.

The Flipkart group includes fashion portals Myntra-Jabong, payments unit PhonePe and logistics firm Ekart.

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, one of the sources said.

Krishnamurthy and Binny Bansal will remain in their current roles after the deal, the two sources said.

Early Flipkart investors Tiger Global and venture fund Accel will sell a majority of their stakes, one of the sources said.

Japan's SoftBank Group, which owns roughly a fifth of Flipkart through its Vision Fund, is expected to completely exit. The Vision Fund had invested close to $2.5 billion in Flipkart via primary and secondary share purchases last year.

The deal will help Walmart - 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).

According to a late-night report from the PTI, Amazon has infused Rs 2,600 crore into India market place Amazon Seller Services, whose board had approved the move on April 26.

According to Greyhound Research 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.

One of the persons said 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.

Amazon is believed to have offered Flipkart a higher valuation of about $22 billion, along with a break up fee of $2 billion, compared with Walmart's $18-20 billion valuation of the Bangalore-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. Agencies

Flipkart will hold a townhall for employees on Friday, with Walmart CEO Doug McMillon likely to attend, one of the sources said.

Other top Walmart executives will also be in India for the announcement, the other source added.

A third source said Flipkart had scheduled multiple batches of townhall meetings with employees on Friday, sparking chatter within the ranks that a deal is likely imminent.

Walmart declined to comment. Flipkart, Alphabet, Tiger Global and Accel did not immediately respond to requests for comment.