Walmart confirms investing $16bn in Flipkart for a majority stake of 77pc

US retail behemoth, Walmart announced that it is acquiring approximately 77 percent in Flipkart for $16 billion for a valuation of over $20 billion. The investment includes $2 billion of new equity funding.

The remainder of the business will be held by some of Flipkart’s existing shareholders, including Flipkart co-founder Binny Bansal, Tencent Holdings, Tiger Global Management and Microsoft.

Walmart and Flipkart 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. Tencent and Tiger Global will continue on the Flipkart board, joined by new members from Walmart. The final make-up of the board has yet to be determined, but it will also include independent members.

With retail changing rapidly, Walmart is actively looking for new ways to serve customers and moving with speed. The Flipkart investment represents a unique opportunity and transforms Walmart’s position in a country with more than 1.3 billion people, strong GDP growth, a growing middle class and significant runway for smartphone, internet, and e-commerce penetration.

“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,” said Doug McMillon, Walmart’s president and chief executive officer.

With the investment, Flipkart will leverage Walmart’s omni-channel retail expertise, grocery and general merchandise supply-chain knowledge and financial strength, while Flipkart’s talent, technology, customer insights will benefit Walmart in India and across the globe.

“While e-commerce is still a relatively small part of retail in India, we see great potential to grow. Walmart is the ideal partner for the next phase of our journey, and we look forward to working together in the years ahead to bring our strengths and learnings in retail and eCommerce to the fore,” said Binny Bansal, Flipkart’s co-founder and group chief executive officer.

Explaining the possible impact of this deal on the consumers, Adrian Lee, Research Director, Gartner said, “Consumers should not expect significant changes in their shopping experience. However, user choice should be improved, with a greater range of Walmart private labels differentiating the merchandise. Flipkart will diversify its inventory to attract more Indian consumer segments that still haven’t started shopping online.”

“Homegrown companies stand to benefit in the long run. As consumers are more attuned and comfortable to shopping online with e-commerce marketplaces, we see vertical specialists (largest categories being fashion, second electronics) benefiting. High value, more discerning consumers who want differentiated choices and unique offers will seek out specialists to fulfill this need,” adde he.

While Walmart and Flipkart will leverage the combined strengths of both companies, they will maintain distinct brands and operating structures. Currently, Walmart India operates 21 Best Price cash-and-carry stores and one fulfillment center in 19 cities across nine states in India and Krish Iyer, president and chief executive officer of Walmart India, will continue to lead that part of the business.

To finance the investment, Walmart intends to use a combination of newly issued debt and cash on hand. Upon closing, Flipkart’s financials will be reported as part of Walmart’s International business segment. If the transaction were to close at the end of the second quarter of this fiscal year, Walmart expects a negative impact to FY19 EPS of approximately $0.25 to $0.30, which includes incremental interest expense related to the investment. In the mid to long term, as the business scales and efficiencies are realized, Walmart expects losses to decline and returns to improve.