Walmart has dropped US$16 billion (AUD$21.45bn) on a 77 per cent stake in fast growing Indian marketplace Flipkart, the largest single deal in its history and a key victory over e-commerce giant Amazon in Asia.
After several weeks of speculation, the world’s largest retailer officially announced the deal in the US overnight, which will substantially increase its presence in India while also providing Flipkart with US$2 billion in new equity funding to accelerate its growth.
The deal will expand Walmart’s existing presence in India its 21-store network to a nationwide e-commerce presence that brought in US$4.6 billion in net sales for the fiscal year ended 31 March, up more than 50 per cent year-on-year.
Walmart said on Wednesday in the US that it supports Flipkart’s ambition to take the business public and is already in discussion with other investors to raise additional equity for the business as e-commerce competition heats up in India.
Flipkart’s existing shareholders, including co-founder Binny Bansal, Tencent Holdings and Microsoft, will retain minority stakes in the business.
Walmart’s president and chief executive Dough McMillion said Flipkart’s minority holders would be “key strategic and technology partners” that would “provide Flipkart with enhanced strategic and competitive advantage”.
“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 McMillon.
The deal signals headwinds for Amazon, which was reported to also be in the running to purchase Flipkart in a bid to bolster its own presence in India.
Amazon already has a sizable business in the country, accounting for more than a quarter of e-commerce spend, according to Euromonitor.
Flipkart founder Binny Bansal, a former Amazon employee, said the Walmart transaction will help to usher in a new wave of retail in India.
“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,” he said.
E-commerce is still a relatively small portion of overall retail spending in India but is expected to grow at four times the pace of the broader market in the coming years.
The Flipkart buy will reduce Walmart’s fiscal 19 earnings per share by 25 – 30 cents but in FY20 the retail giant plans to accelerate Flipkart’s growth and said EPS impact will be around 60 cents per share.
The transaction is subject to regulator approvals.