Walmart likely to announce Flipkart deal by the end of the week

Walmart likely to announce Flipkart deal by the end of the week

For Walmart, buying a majority stake in India's Flipkart Group was a unique opportunity that couldn't be passed up: allying with an e-commerce driver in a burgeoning retail economy poised to become a global powerhouse.

Walmart Inc said on Wednesday it will pay $16 billion for a roughly 77 percent stake in Indian e-commerce firm Flipkart, the US retailer's largest-ever deal as it competes with Amazon.com Inc in an important growth market.

Amazon, which has a 30 per cent share of India's e-commerce market, is reported to have considered making a formal offer to acquire a 60 per cent stake in its local rival. In a unusual 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.

We believe that the momentum of the deal is too big to ignore - The ripples which this M&A will create has the capacity to shake up everything for India's digital & internet industry. Walmart is also willing to let other potential investors pick up stakes in Flipkart during subsequent rounds, which will see its stake go down, while retaining majority control.

Meanwhile, the two former Amazon employees, Sachin Bansal and Binny Bansal, steadily grew Flipkart from the book-selling company they founded in a two-bedroom apartment in Bangalore.

The Vision Fund had invested close to $2.5 billion in Flipkart via primary and secondary share purchases a year ago. "Sadly my work here is done and after 10 years, it's time to hand over the baton and move on from Flipkart". This deal means the Indian e-commerce space will now be dominated by two U.S. retailers - Walmart and Amazon.

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Walmart said Flipkart's logistics, payments and apparel businesses offer new areas of growth.

It is "a clear attempt to control and dominate the retail trade of India by Walmart", the Confederation of All India Traders said, adding that it would encourage predatory pricing, hurt Indian businesses and create an uneven playing field. While SoftBank and Naspers appear to have exited fully, the rest of the company will be owned by Flipkart's existing shareholders, including Flipkart co-founder Binny Bansal, Tencent Holdings Limited, Tiger Global Management and Microsoft.

Walmart's acquisition of Flipkart should not face any policy hurdles in India as the e-commerce major runs a marketplace in which 100% foreign direct investment is allowed.

At a recent AWS event, a senior India spokesperson told CXOToday that India has been and will always be one of Amazon's prime market, as a chunk of its business comes from the region. The deal should give each a fortune of about $1 billion, although that status may be shortlived as the pair may have to pay 20 per cent capital gains tax on any shares they sell in the company, tax experts say.

Shares of Walmart fell 4% in early trading as the company warned the deal would lower earnings. Amazon is also investing significant money in marketing and promotions as the company looks to bring more consumers to its online shopping platform. In fact, Walmart has shut down its own e-commerce mobile app in China in favour of highlighting JD.com's global flagship store in China.