Ending weeks of speculation, the world’s largest retailer Walmart on Wednesday officially confirmed its plan to take control of India’s largest e-commerce firm Flipkart. The US giant would pump in $16 billion (Rs 1.07 lakh crore) for a 77 per cent stake in the Bengaluru-based firm, making it one of the largest deals in the e-commerce space globally.
However, the markets gave a resounding thumbs down to the news on Wednesday with Walmart shares touching the lowest intraday price since October. The deal is expected to dent the retail giants profits in the near term.
Notably, India’s online retail market will now be dominated by two American companies. Already, US e-commerce giant Amazon has been aggressively expanding its presence in India. With Walmart’s entry, the dynamics of the retail landscape will change dramatically as Flipkart will get additional resources and expertise to take on Amazon. According to a recent Forrester report, Amazon and Flipkart together enjoy over 65 per cent share in the Indian e-retail market.
While Walmart will pick up majority stake in Flipkart, the remaining will be held by existing stake holders including co-founder Binny Bansal, Tencent Holdings, Tiger Global Management and Microsoft. Co-founder Sachin Bansal and SoftBank Group will exit.
The deal values the loss-making home-grown start-up at $21 billion (`1.38 lakh crore), a huge jump from $12 billion estimated last year. This is not surprising given the explosive growth of the e-retail market in India, which is estimated to touch $200 billion by 2026.
Walmart and Flipkart will maintain their distinct brands and operating structures. Also, both companies are in talks with more potential investors. Google’s parent Alphabet Inc is also reportedly likely to join Walmart to pick up stake in Flipkart.
Traders, SJM oppose deal
Walmart-Flipkart deal evoked sharp reaction from traders and RSS affiliate Swadeshi Jagran Manch. While CAIT accused Walmart of trying to dominate the retail trade in India, SJM alleged the US firm of circumventing rules for a “back-door entry” into the Indian market
$10bn
The erosion in Walmart’s market capitalisation after investors on Wednesday reacted negatively to the retail giant’s decision to acquire Flipkart