Walmart to pay $16b for majority stake in India's Flipkart

The transaction will include $2 billion in new equity to support Flipkart’s growth, but the majority will be in secondary shares. Naspers said it would sell its entire 11.18% interest to Walmart for $2.2 billion, generating an IRR of approximately 32%. According to SoftBank founder Masayoshi Son, the Japanese firm will receive $4 billion, having paid $2.5 billion for a more than 20% stake last August.

The 23% not being acquired by Walmart will be held by several existing investors, including Flipkart co-founder Binny Bansal (pictured, right, with Walmart CEO Doug McMillon), Tencent Holdings, Tiger Global Management, and Microsoft Corp. Walmart is in talks with other potential investors, which could result in its stake being diluted. A Flipkart IPO is also still on the agenda.

The valuation of $20.8 billion represents a step up from April 2017, when Microsoft, Tencent, and eBay invested $1.4 billion, with the latter also transferring its local business to Flipkart. For that round, the post-deal valuation was $11.6 billion, down from $15 billion in mid-2015.

It came after an 18-month period during which the CEO was changed twice, several senior executives departed, and Amazon overtook Flipkart and domestic rival Snapdeal in gross merchandise value (GMV) for the first time. Mutual funds managed by the likes of Fidelity, Morgan Stanley, and T. Rowe Price all marked down their investments in Flipkart.

Snapdeal’s travails were reportedly even worse and SoftBank, an investor in the company, agitated for a trade sale to Flipkart at a much lower valuation than its previous round. Negotiations took place, but Snapdeal’s founders pulled out of the deal. This prompted SoftBank to make its investment in Flipkart, allowing Tiger Global and others to make partial exits.

Walmart’s acquisition of Flipkart is likely to change the competitive dynamic with Amazon for both companies. Flipkart will have more financial and strategic resources to deploy in the battle for mobile market share, while Walmart gains a strong online platform to complement its offline India presence of 21 Best Price cash-and-carry stores and one fulfillment center.

Founded in 2007, Flipkart offers more than 80 million products across 80 categories, serving over 800 cities and making 500,000 deliveries every day. In addition to the main Flipkart platform, it owns fashion specialists Myntra and Jabong as well as payments business PhonePe. For the year ended March, GMV and net sales reached $7.5 billion and $4.6 billion, respectively, representing more than 50% year-on-year growth in both cases.

The extent of Flipkart's losses was not disclosed. The battle for supremacy in India's e-commerce space has been characterized by high cash burn rates as companies spend heavily on marketing. Amazon has pledged to make substantial investments in its local business.

“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,” Bansal said in a statement. “While e-commerce is still a relatively small part of retail in India, we see great potential to grow.” Walmart added that e-commerce in India is growing four times faster than traditional retail.

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• Topics
• South Asia
• Technology
• Consumer
• Trade sale
• India
• Softbank
• Tiger Global Management
• Tencent
• Microsoft
• TMT