WalMart buys 77% stake in Flipkart for $16 bn

Together, Flipkart and Amazon control majority of India’s $30 billion e-commerce market that is forecast to grow to $200 billion by 2026

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New Delhi: It’s official. WalMart Inc has agreed to pay $16 billion for a roughly 77% stake in online shopping site Flipkart, the U.S. retailer’s biggest foreign investment ever as it battles rival Amazon in one of the world’s biggest emerging markets. The deal values the 11-year old Indian e-commerce firm at $20.8 billion.

The remainder of the business will be held by some of Flipkart’s existing shareholders, including Flipkart co-founder Binny Bansal, China’s Tencent Holdings Ltd, Tiger Global Management LLC and Microsoft Corp, the company said in a statement on Wednesday.

SoftBank CEO Masayoshi Son earlier confirmed that the agreement was made on Tuesday night.

Sachin Bansal, who had co-founded Flipkart with Binny Bansal in 2007, would exit the company after the deal. The deal will now pit US-based giants WalMart and Amazon in the Indian market.

Online sellers on Flipkart are jittery because WalMart can wipe them off. WalMart, a $500 billion American behemoth, has a reputation for killing small businesses with ultra-low prices. They fear that WalMart might bring in its own private labels via Flipkart to the Indian consumers, adding to competitive pressures.

WalMart said it expected the deal to knock about 25-30 cents off its earnings in fiscal 2019, assuming the deal closes at the end of the second quarter.

It also said that the deal included $2 billion of funding from new equity in Flipkart, which could be sold to additional investors in the future, diluting the U.S. company’s overall stake.

The deal will help the WalMart — which has seen consumers migrating to online platforms like those run by Amazon — get a foothold in the world’s fastest growing economy with a market of 1.3 billion people. The Flipkart model would help the bricks-and-mortar retail giant to take on Amazon.

For Flipkart, the deal would give it additional capital and retail muscle to fight Amazon.

Together, Flipkart and Amazon control majority of India’s $30 billion e-commerce market that is forecast to grow to $200 billion by 2026.

Sachin and Binny, who are not related and formerly worked for Amazon.com Inc, like their US rival began by selling books when they founded Flipkart.

Amazon closely trails Flipkart, which along with its fashion units controls nearly 40% of India’s online retail market, according to estimates by researcher Forrester. WalMart’s push into e-commerce comes as Amazon has embraced offline retail, with an affiliate of the Seattle-based company picking up a $27.6 million stake in Indian retailer Shopper’s Stop Ltd.