Walmart Inc has officially announced its acquisition of Flipkart for $16 billion for a valuation of over $20 billion, making it the largest e-commerce acquisition in the world.
This is also the largest buyout for the US company with its biggest bet ever in online space and on India, underscoring the growing digital consumption potential in a country of 1.3 billion.
The Bentonville company has acquired 77% of the Bengaluru-based company. 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, Walmart said.
The deal includes a $2 billion fresh equity funding and secondary investments. "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 eCommerce in the market,” said Doug McMillon, Walmart’s president and chief executive officer said in a statement.
“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, in a statement.
The Wednesday announcement culminates discussions between Walmart and the Bengaluru company that began in September 2016 with Walmart’s plans to pick a minority stake in Flipkart. The talks pivoted earlier this year towards the world’s largest retailer acquiring Flipkart. ET was first to report on the talks between Walmart and Flipkart on 27 September, 2016.
The deal, which will see founder Sachin Bansal exit completely, will now pit US-based giants Walmart and Amazon in the Indian market, which experts say will help in growing the share online retail.
“This allows Walmart to jump into a high-growth market, and results in two global players focusing on the growth of the Indian ecommerce market,” said Prasanto Roy, vice-president of NASSCOM’s Internet council. “The ecommerce fight ahead should be less about market share than about growing the market manifold."
The deal is also expected to generate wealth in crores of rupees for founders, investors as well as several employees. “The distribution of wealth will be inspiring. We haven't had such as situation since Infosys. It will inspire many more Indians to take the entrepreneurial path in the coming years,” said Vani Kola, managing director of Kalaari Capital.
Walmart intends to keep the current management of Flipkart and the Bengaluru team will report to Marc Lore, CEO of Walmart’s US e-commerce, whose company Jet.com was acquired by Walmart for $3.3 billion in August 2016.
Amazon founder Jeff Bezos had committed $5 bn to India, and the investments in its India business are expected to cross the mark soon. The Amazon marketplace business in India alone has received over Rs 20000 crore, with significant investments also going into its cloud business and the newly launched food retail segment.
Overall, the Walmart-Flipkart deal is expected to be a good boost for the ecommerce sector and may bring in some rationality, according to Sanjay Sethi, CEO of ShopClues. "Walmart is a long-term player, and it might bring in more rationality into the market,” Sethi said.