Control of leading Indian e-retailer Flipkart will be taken over by Walmart for $16 billion against a stake of 77%.
Walmart has been attempting to create a dent in the Indian market and now it has the chance to do so via Flipkart. Wholesale outlets of the Arkansas-based retailer have been prevented to be opened in India by the government of the fastest growing major economy in the world.
“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,” Walmart CEO Doug McMillon said in a statement.
According to the deal, about $2 billion would be invested freshly in Flipkart by Walmart. The company’s chief financial officer Brett Biggs said on a conference call, that the company could also arrange for “additional potential investors” while it still retained a majority stake.
McMillon said that the major reason of Walmart getting interested in Flipkart is the presence of the Indian retailer in multiple sectors like fashion, electronics and digital payments.
SoftBank CEO Masayoshi Son first confirmed the news of the deal during an earnings presentation on Wednesday. Last year, about $2,5 billion was invested in Flipkart by the Japanese technology group. The Japanese group is set make a return of 60% on its investment because SoftBank’s stake in Flipkart has been valued at $4 billion form the deal with Walmart, Son said. Stakes in Flipkart would be retained by many of the other investors of the company which includes the co-founder Binny Bansal, Chinese tech giant Tencent and Microsoft.
In a market of 1.3 billion people, this deal will boost the strength of Walmart to take on Amazon. It had been reported the U.S., company had been eyeing the deal since 2016.
Amazon CEO Jeff Bezos had said in 2016 that he saw “huge potential” in India and has already pledged to invest at least $5 billion in India through his company. The annual Prime Day blockbuster sale and Prime video and music services have been introduced by Amazon in the Indian market as a challenge to Flipkart.
Sachin Bansal and Binny Bansal – two former Amazon employees, founded Flipkart in 2007. There was no confirmation from Walmart about Flipkart’s executive chairman – Sachin Bansal, selling his shares.
According to estimates by Walmart, there would be an annual growth of 36% for the next five years in the online shopping market in India. Compared to the traditional retail market of India, that growth rate is four time more.
Some of the assets in other markets have been divested by Walmart in preparation to venture in to the Indian market. The U.K. supermarket business of the company has been sold to Sainsbury’s for $4.1 billion.
“This is clearly an investment for the future, and… is indicative of Walmart’s long-standing strategy of shifting resources into higher growth potential markets,” said Charlie O’Shea, lead retail analyst at Moody’s.
(Adapted from Money.CNN.com)