The face of Indian e-commerce industry can expect some major overhauls soon with the arrival of Walmart as one of largest shareholders in Flipkart. Though, this can set off a virtual e-commerce stand-off with Amazon, the impact is surely awaited by retailers everywhere.
It is expected that Walmart may purchase some 20-26% stake in Flipkart which will then be later increased with time and experience in the Indian e-commerce market. It is also anticipated that Walmart might invest a total of $10-20 billion for the mega purchase and that the deal might also include purchase of certain shares from many prominent investors including the king of telecom market, Softbank.
This deal is actually the result of initial talks held back in 2016 between Walmart and Flipkart Offers. As the talks proceed, the current plan of Walmart is to invest through a mix of primary and secondary purchase and sale of shares. For that matter, Flipkart’s early financial backers and employees would have to sell their shares or stakes in the company to complete this deal. The part wherein existing shareholders and investors would sell their shares is expected at certain discounted valuations, somewhere between $10-20 billion. Last month though this amount stood at $10-12 billion.
Overall, more than 30% holdings in Flipkart can be expected through Walmart’s dealings in secondary shares. Though Walmart’s final shareholding pattern remains to be finalized, there are some aspects that cannot be overlooked such as the exit of major investors and shareholders of Flipkart. Negotiations have already begun with some of them, including early investors Naspers and Tiger Global. This would be a major exit for Flipkart when analysing the contributions and financial backing by many of its early investors.
At present, SoftBank is the largest shareholder in Flipkart with 23.6% stake. This is followed by Tiger Global with 20.5%, Naspers with 13%, and founders of Flipkart Coupons, Binny and Sachin Bansal at 10%. In fact, the total amount invested by Tiger Global alone stands at over $1billion since their initial backing of the company. On that note, some of the other prominent shareholders include Tencent and Accel Partners.
Having the largest share and yet selling a part of its ownership is the kind of leverage Walmart would gain by this deal’s finalization as it has been analysed that SoftBank, the largest shareholder for Flipkart may sell up to 24% of its ownership to Walmart. The bigger picture is however the kind of market expansion by Walmart once it closes the deal and the hold it gains on fighting with its biggest competitor, Amazon, not only in the USA but also across the world. Further, clinching this deal is also essential as it would help Walmart in gaining a major customer base in the Indian ecommerce retail market.
However, acquiring a major stake in Flipkart wasn’t the only deal made by Walmart in the recent past. They had also acquired and paid a huge amount of approximately $3 billion for another e-retailer, Jet.com and entered into a joint venture with Japan’s Rakuten Inc. for selling online groceries in Japan and other eBooks, audiobooks in the USA. Many rumours do suggest that both this acquisition and joint venture was mainly to reduce their competitor’s gap and gain the edge with Amazon.
Now, for Flipkart this amount of investment from Walmart is pretty big especially when it comes at a time when they had recently a record level funding only last year; $4 billion. This had happened when Flipkart had sold its shares last year which was worth some $600 million. Later, their valuation had also further jumped to $14.2 billion through capital raised from SoftBank, their largest shareholder.
In the past, even though Walmart had tried several times for an open market system for foreign retailers and companies in India, this time they are being more careful until the deal is finalized. In the end though, if this deal closes in its current estimation and valuation, we can expect Walmart to play a major role in the functioning and running of Flipkart. At the moment, Walmart has about 21 stores in India and this is also expected to rise as it is one of the other major speculations after Walmart becomes the largest shareholder in Flipkart.