In a mega deal in India's e-commerce space, the world's retail giant, Walmart Inc, on Wednesday announced it was buying 77 per cent equity stake in the country's largest e-tailor Flipkart for $16 billion (Rs 1.05 lakh crore). This will give the US retailer access to the Indian online market that is estimated to grow to USD 200 billion within a decade.
The deal, under which co-founder Sachin Bansal and Japan's Softbank Corp Group are exiting, values Flipkart at USD 20.8 billion. It is the biggest M&A deal in India this year.
"Walmart's investment includes USD 2 billion of new equity funding, which will help Flipkart accelerate growth in the future," the US-based firm said in a statement.
They "are also in discussions with additional potential investors who may join the round, which could result in Walmart's investment stake moving lower after the transaction is complete", the statement added. "Even so, the company would retain clear majority ownership," Walmart said.
Google parent Alphabet Inc is seen to be the potential investor who may get as much as 15 per cent.
"The investment underscores our commitment to sustained job creation and investment in India, one of the world's largest and fastest-growing economies," said Walmart.
As part of the agreement, the remaining 33 per cent of the equity will be with Flipkart co-founder Binny Bansal and institutional investors Tencent Holdings Ltd, Tiger Global Management LLC and Microsoft Corporation.
"Though the focus will be on serving customers and growing the business, we will support Flipkart's ambition to transition into a publicly-listed, majority-owned subsidiary in the future," the statement said.
The deal will also give Walmart an opportunity to partner with the local leader in a large, fast-growing market, as the e-tailer's leadership team will be supported by other investment and technology partners.
In an investors' call later, Walmart Chief Executive Doug McMillon said India was a priority market for the retail giant as the country was the largest and fastest growing economy.
"As a company, we are transforming globally to meet and exceed the needs of customers and we look forward to working with Flipkart to grow in this critical market," said McMillon.
The deal will benefit India in providing quality, affordable goods for customers and create skilled jobs and opportunities for small suppliers, farmers and women entrepreneurs.
"India is one of the most attractive retail markets, given its size and growth rate and our investment is an opportunity to partner with Flipkart that is leading transformation of e-commerce in the market," he said.
Observing that Walmart's investment was significant and would help fuel the e-tailer's ambition to deepen its connection with buyers and sellers, Bansal said though e-commerce was a small part of the country's retail sector, he saw a great potential to grow.
"Walmart is the ideal partner for the next phase of our journey and we look forward to working together to bring our strengths and learnings in retail and e-commerce to the fore," he said.
Founded in 2007, Flipkart has led the e-commerce revolution in the sub-continent, growing rapidly and earning customer's trust with digital technology including artificial intelligence to hard-sell a wide range of goods spanning electronics, appliances, mobile, fashion and apparel.
Walmart statement said: "As a company, we are transforming to meet the needs of customers and look forward to working with Flipkart to grow in this critical market. We are confident of providing the e-tailer strategic and competitive advantage."
With platforms such as Myntra, Jabong and PhonePe, Flipkart is positioned to leverage its integrated ecosystem, which is defined by localized service, insights into customers and an efficient supply chain.
The supply chain arm, eKart, serves 800 cities, making 5,00,000 deliveries daily.
In fiscal 2017-18, Flipkart recorded Gross Merchandise Value (GMV) of $7.5 billion and net sales of $4.6 billion, representing 50 per cent year-over-year growth.
Flipkart will leverage Walmart's omni-channel retail expertise, grocery and general merchandise supply-chain knowledge and financial strength, while its talent, technology, customer insights and innovative culture will benefit the US retail giant in India and the world over.
Post-acquisition, both the partners will leverage their strengths but will maintain their distinct brands and operating structures.
"We operate 21 best price cash-and-carry stores and one fulfilment centre in 19 cities across nine states, with 95 per cent of sourcing from the country, aiding suppliers, creating skilled jobs and contributing to local economies," said Walmart India Chief Executive Krish Iyer in the statement.
Flipkart: From modest start to Walmart nuptial and everything in between
From selling books online to striking a jaw-dropping USD 16 billion deal with the world's largest retailer Walmart, all within 11 years, Flipkart has given India its big startup success story -- the one which is likely to be quoted by starry-eyed entrepreneurs for years to come.
Former employees of US e-commerce giant Amazon, Sachin Bansal and Binny Bansal had met in 2005 at IIT-Delhi. Flipkart was launched in October 2007.
The idea was simple. Consumers could shop online and get books delivered to their doorstep. Flipkart registered 20 shipments in the year of its debut.
It wasn't an easy road as Internet penetration was abysmally low and e-commerce, unheard of. Bricks and mortar retailers were not threatened and many dismissed e-tailing as a foreign concept saying that Indians want to touch and feel' whatever they buy.
Traders oppose Walmart-Flipkart deal, industry gives thumbs up
Walmart's acquisition of homegrown online retailer Flipkart for USD 16 billion faced opposition from traders and an RSS affiliate, though industry body Assocham said it was a 'salute' to the success of Indian start-ups.
While industry leader Kiran Mazumdar-Shaw saw the deal as a "huge endorsement for India's first e-tailing" company, Future Group CEO Kishore Biyani termed it as "just an event of change of ownership" and everything else in the market remained the same.
The Confederation of All India Traders (CAIT) said the deal is nothing but a clear attempt to control and dominate the retail trade in India by Walmart through e-commerce in the long run.
RSS-affiliate Swadeshi Jagran Manch alleged that Walmart was "circumventing" rules for a "back-door entry" into India and sought Prime Minister Narendra Modi's intervention to safeguard "national interest".
"This will further eliminate small and medium businesses, small shops, and opportunity to create more jobs. Most of these small entrepreneurs are already battling for their existence; entry of Walmart will further create problems for them," the co-convenor of the manch said in a letter to the prime minister.
On the other hand, Retailers Association of India while staying away from commenting directly on the acquisition, said some e-commerce companies in India have been flouting FDI Policy for marketplaces.
"Digitally powered e-Walmart will certainly vitiate the e-commerce and retail market. There will be an uneven level playing field to the disadvantage of retail traders. Only the venture capitalist, investors and promoters will be benefitted and not the country," CAIT said in a statement.
CAIT Secretary General Praveen Khandelwal said the government should immediately frame a national policy for e-commerce and constitute a regulatory authority to regulate e-commerce business in India.
Till the time a regulator is constituted, the deal should be put in abeyance by the government and a close scrutiny should be held of the entire deal, he added.
The Retailers Association of India asked the government to take strong steps to ensure adherence to the FDI policy.
"We believe that some e-commerce companies in India have not been adhering to the guidelines issued under the Press Note 3 of the FDI Policy for marketplaces. These companies have been directly or indirectly participating in pricing and discounting, which is against the policy that seeks to create a level playing field," Retailers Association of India alleged.
Expressing contrasting view, Assocham Secretary General D S Rawat said the industry body saw the "Walmart-Flipkart (deal) as a salute to the success of an Indian Start-Up that pioneered the fledgling online retailing in a country where bulk of the trade is in the unorganised sector."
"Isn't it so great that a start up goes on to fetch an enterprise valuation of about USD 21 billion, making the Walmart equity infusion as the largest ever FDI into India," Rawat said in a statement.