This week, Walmart successfully pulled ahead of Amazon in the race for the top grocery spot in one of the fastest-growing markets in the world after announcing it has signed definitive agreements to become the largest shareholder in Flipkart. Subject to regulatory approval in India, Walmart will pay approximately $16 billion for an initial stake of approximately 77 percent.
Walmart's investment currently includes $2 billion of new equity funding, with ongoing discussions occuring with additional potential investors interested in joining the round. While this could result in Walmart's investment stake moving lower after the transaction is complete, Walmart would retain clear majority ownership.
“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. “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.”
According to a company press release, Walmart expects e-commerce to grow at four times the rate of overall retail, with Flipkart specifically positioned to leverage its integrated ecosystem of localized service, deep insights into Indian customers, and a best-in-class supply chain, eKart, that serves more than 800 cities and makes 500,000 deliveries daily. In exchange, Flipkart will leverage Walmart’s omni-channel retail expertise, grocery and general merchandise supply-chain knowledge, and financial strength. Additionally, Walmart will also be supporting Flipkart’s ambition to transition into a publicly-listed, majority-owned subsidiary in the future.
"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. “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 e-commerce to the fore.”
While Walmart and Flipkart will leverage the combined strengths of both companies, both will maintain distinct brands and operating structures. Walmart currently operates 21 Best Price cash-and-carry stores and a fulfillment center in 19 cities across nine states in India, which will continue to be led by Krish Iyler, President and Chief Executive Officer of Walmart India.
“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. “This investment aligns with our strategy and our goal is to contribute to India’s success story, as we grow our business. Over the last 10 years, Flipkart has become a market leader by focusing on customer service, technology, supply chain, and a broad assortment of products. With Flipkart and the other shareholders who have come together, we will continue to advance the winning of e-commerce ecosystem in India.”
While this is Walmart's largest acquisition to date, the retailer's shares dropped four percent in early trade this morning, as Walmart warned the deal would “dent earnings” in fiscal 2019 per share by 25 cents to 30 cents, according to a report by Reuters.
“We will not know for 5-10 years whether this transaction is successful strategically or financially,” said Steven Roorda, Portfolio Manager with Minnesota-based Stonebridge Capital Advisors, according to Reuters. “Walmart has a very poor track record operating outside North America.”
For the full details of the transaction, click here.
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