Walmart To Invest Approximately $16 Billion In Flipkart Group

Walmart Inc. confirmed of getting into definitive agreements to become the largest shareholder in Indian Flipkart Group. Subject to regulatory approval in India, Walmart will pay approximately $16 billion for an initial stake of approximately 77 percent in Flipkart Private Limited. The investment in the Indian e-commerce company becomes the biggest-ever that Walmart has made.

It is reported that the remainder of the business will be held by some of Flipkart’s existing shareholders, including Flipkart co-founder Binny Bansal, Tencent Holdings Limited, Tiger Global Management LLC and Microsoft Corp.

“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 the transformation of eCommerce in the market,” said Doug McMillon, Walmart’s president and chief executive officer.

He further added, “As a company, we are transforming globally to meet and exceed the needs of customers and we look forward to working with Flipkart to grow in this critical market. We are also excited to be doing this with Tencent, Tiger Global and Microsoft, which will be key strategic and technology partners. We are confident this group will provide Flipkart with enhanced strategic and competitive advantage. Our investment will benefit India providing quality, affordable goods for customers while creating new skilled jobs and fresh opportunities for small suppliers, farmers and women entrepreneurs.”

“This investment is of immense importance for India and will help fuel our ambition to deepen our connection with buyers and sellers and to create the next wave of retail in India,” said Binny Bansal, Flipkart’s co-founder and group chief executive officer.

Walmart expects that in India eCommerce will grow at four times the rate of overall retail. Flipkart’s supply chain arm, eKart, serves more than 800 cities, making 500,000 deliveries daily. In the fiscal year ended March 31, Flipkart recorded GMV of $7.5 billion and net sales of $4.6 billion representing more than 50 percent year-over-year growth in both cases. 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 and agile and innovative culture will benefit Walmart in India and across the globe.

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.

Structure

Krish Iyer, president and chief executive officer of Walmart India, will continue to lead that part of the business.

“Flipkart has established itself as a prominent player with a strong, entrepreneurial leadership team that is a good cultural fit with Walmart,” said Judith McKenna, president and chief executive officer of Walmart International.

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. The board will work to maintain Flipkart’s core values and entrepreneurial spirit while ensuring it has strategic and competitive advantages.

Closing is expected later this calendar year, subject to regulatory approval.

Finance

The Flipkart investment represents a unique opportunity, consistent with the approach of looking for innovative ways to grow domestically and internationally, particularly in markets with significant long-term opportunity. The Flipkart investment 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 eCommerce penetration.

Walmart and Flipkart are also in discussions with additional potential investors who may join the round, which could result in Walmart’s investment stake

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.

This investment represents a unique opportunity in a market with significant long-term growth prospects. In the mid to long term, as the business scales and efficiencies are realized, Walmart expects losses to decline and returns to improve.

Contribute to India

As Walmart scales in India, the company will continue to partner to create sustained economic growth across agriculture, food and retail. Future investments will support national initiatives and will bring sustainable benefits to the country, including:

• Job creation, as plans would create jobs through the development of supply chains, commercial opportunity and direct employment.
• Supporting small business and ‘Make in India,’ through direct procurement as well as increased opportunities for exports through global sourcing and eCommerce. Among other initiatives, Walmart will partner with kirana owners and members to help modernize their retail practices and adopt digital payment technologies.
• Support farmers and develop supply chains through local sourcing and improved market access.
• Reduced food waste by improving waste management practices and investing in supply chains, especially cold storage.

Also Read: 8 things to learn from Sachin Bansal of Flipkart