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After Flipkart deal, India to be Walmart and Amazon’s new battleground

The US retail giant Walmart has announced its acquisition of 77% stake in the Bengaluru-based e-commerce player Flipkart for $16 billion

After months of speculation, US retail giant Walmart has officially announced its acquisition of a majority stake in India’s largest e-commerce player, Flipkart. In what is pegged to be the world’s biggest e-commerce deal, Walmart will acquire 77% stake in the Bengaluru-based Flipkart for $16 billion.

Walmart’s Chief Executive Officer, Dough McMillan, flew down to Bengaluru on Wednesday for a town hall where the deal was made official.

"India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market," McMillon said in a statement.

The deal witnessed several exits including Sachin Bansal who sold his entire 5.96 per cent stake for $1.23 billion and parted ways with Flipkart that he had founded in 2007 along with friend from IIT, Binny Bansal (not related).

Another significant exit is that of SoftBank, the largest investor in Flipkart. In a strange coincidence, the deal, valuing Flipkart at $20.8 billion, was announced to the world by SoftBank Chief Executive Masayoshi Son in a webinar with investors hours before Walmart did so. He also confirmed that SoftBank would get about $4 billion from its $2.5-billion investment in Flipkart last August.

Flipkart’s second largest shareholder, Tiger Global Management, will sell a large portion of its shares and retain a small holding in the company, according to sources. Kalyan Krishnamurthy, who became the CEO of Flipkart in January 2017, will retain the position under Walmart’s control. He was a top-ranking executive at the New York-based investor and a key aide of Lee Fixel, Partner at Tiger Global.

According to the deal brokered, the remainder of the business will be held by the existing investors, including Flipkart’s co-founder Binny Bansal, Tencent, Tiger Global and Microsoft.

Walmart's investment in Flipkart includes $2 billion of fresh equity funding. The company said it will use a combination of newly issued debt and cash to finance the round. The two companies are in talks with other potential investors to join the investment, which could reduce Walmart's stake.

This sets the stage for the Indian leg of the bitter competition between Amazon and Walmart. The Arkansas-headquartered Walmart has been trying to enter India for quite some time now. Facing severe competition from Amazon on its home turf, Walmart has been trying to expand its footprint globally but India’s policies do not allow overseas retailers to open stores in the country. With this deal Walmart is hoping to have a stake in India’s promising e-commerce industry.

While both the companies have agreed to maintain Flipkart’s independence, it is inevitable that the battleground is set for a face-off between Walmart-backed Flipkart (the current leader in the Indian e-commerce sector) and Amazon (which has managed to grab the second position in just four years).

Satish Meena

“It will just be an extension of their rivalry in the US market. What they have done is, they have dialled back from the UK market and have turned their focus on India. Primarily because India is a market where they can invest and leverage the lead of Flipkart in the e-commerce space. They want to do the same thing that Amazon did to them in the US,” said Satish Meena, Senior Forecast Analyst, Forrester.

Rohan Bhargava

Rohan Bhargava, Co-founder at CashKaro.com, Ratan Tata & Kalaari Capital backed Cashback & Coupons Site, said, “The Flipkart-Walmart deal is set to change the competitive landscape of Indian e-commerce. The big advantage that Amazon always had over Flipkart was the unlimited cash it could plough into the growth of its Indian business. Now with Walmart on Flipkart’s side, Flipkart can actually do the same and the battle for acquiring the next 100 million Indian online shoppers.”

Indian e-commerce is projected to reach $200 billion by 2026 from $38.5 billion as of 2017. Capturing a share of this growing market via Flipkart will be Walmart’s best chance of establishing its foothold in India, especially after the Chinese opportunity is already taken and its arch rival Amazon has a very strong grip in the US.

“Walmart will be able to access Flipkart's loyal customer base, a well-established e-tailing delivery system and benefit from its learning of being a category creator in India. On the other hand, the deal will give Flipkart an instant leg up in the offline retail space and a strategic investor with great learning,” added Bhargava.

Shrenik Gandhi

According to Shrenik Gandhi, Co-Founder and CEO, White Rivers Media, “It’s a win-win situation for everyone. Win for the customers - because the deals, discounts and brand loyalty is here to stay, win for the company - because now they have the ammunition to not just sustain, but to possibly win at this game and win for the ecosystem - because healthy competition is essential for betterment of the experiences. Because at the end of the day, user experience is of prime importance.”

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