Walmart is set to announce a deal worth nearly $15bn to take a majority stake in Flipkart, India’s largest online retailer, setting up a fight with US rival Amazon for the fast-growing Indian ecommerce sector.
Barring any last-minute complications, the Arkansas-based retailer will buy about three-quarters of Flipkart’s shares at a valuation of just under $20bn, according to two people directly involved in the deal. Doug McMillon, Walmart’s chief executive, will fly to India this week to announce the takeover, one of the people said.
The acquisition will be the biggest foreign direct investment in Indian history, surpassing a Russian-led consortium’s $12.9bn buyout of refiner Essar Oil agreed in 2016. It comes as Walmart overhauls its international strategy, having ceded control of its UK subsidiary Asda last week through a merger with Sainsbury’s.
Walmart and Flipkart declined to comment.
Founded in 2007 by Sachin and Binny Bansal, two former Amazon workers, Flipkart grew rapidly by emulating the strategy used by their erstwhile employer in the US from the 1990s onward, starting by offering books before expanding into electronics and other goods. The competitive field strengthened dramatically in India in 2013 with the arrival of Amazon, which has committed $5bn of capital to its Indian operation.
But Flipkart maintained its lead in volumes with the help of strong financial backing from its largest investor, New York-based Tiger Global Management, which was joined early last year by US groups Microsoft and eBay, along with Tencent of China.
The Vision Fund run by Tokyo-based SoftBank, which invested $2.5bn in Flipkart last August, will sell that entire holding, while Tiger Global will sell most of its holding but retain a 5 per cent stake, according to a person involved in the deal. Management figures including the Bansals will retain a holding of about 10 per cent, the person said.
Walmart has been attempting to gain a foothold in India for more than a decade, first entering in 2007 through a partnership with Bharti Enterprises that was undermined by regulations restricting multi-brand retailers, aimed at protecting small retailers. It had previously held talks about an investment in Flipkart in 2016.
A second person close to the deal said that Alphabet, Google’s holding company, might buy some of the shares earmarked for sale, which would be a mixture of new and existing shares. The person added that Walmart was planning to expand Flipkart into online food and grocery sales, from its current focus on consumer durables and clothing.
Amazon has also been increasing its presence in the Indian grocery sector, as part of a drive to take the lead in the country’s ecommerce market after being relegated to marginal status in China.
Analysts at Forrester Research predict that Indian ecommerce sales will amount to $27bn this year, compared with $1.1tn in China. But they estimate that online sales in India grew 26 per cent last year — a pace they expect to be maintained over the next five years, making India the fastest growing large ecommerce market, helped by the spread of smartphones and cheap mobile data.
“The upside is big for both Amazon and Flipkart in the next two decades,” said Satish Meena, an analyst at Forrester. “No other market except China and the US can compete in terms of total retail opportunity.”
Additional reporting by Kiran Stacey in New Delhi
This article was written by Arash Massoudi and Simon Mundy from The Financial Times and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to [email protected].