The acquisition of the majority stake makes Walmart the largest shareholder of the city-based Flipkart group and its investment will help accelerate its customer-focused mission to transform e-commerce in India through technology. Amazon made its bid for a bulk stake in Flipkart.
Shares of Walmart fell 4% in early trading as the company warned the deal would lower earnings. Apart from his departure from the online retail giant, the company ended up being taken over by US-based supermarket conglomerate Walmart. Amazon was up a fraction.
Rumors have circulated for a number of weeks, but now it's official: Walmart has just said it will spend $16 billion buying a controlling sharing in Flipkart, the Indian ecommerce site. The deal, capping nearly two years of talks, will help the Bentonville, Arkansas-based retailer fortify and boost market share against Amazon.com, which reportedly had tried to make a competing offer for a stake. "That said, WMT's improving omni-channel relevance adds durability to the company's longer-term growth opportunity".
Flipkart will hold a townhall for employees on Friday, with Walmart CEO Doug McMillon likely to attend, one of the sources said.
"The deal indicates attractiveness of India's consumption market for global majors".
The Vision Fund had invested close to $2.5 billion in Flipkart via primary and secondary share purchases a year ago. The aim is to aid Flipkart in accelerating future growth. Investing $16 billion is a big risk though, and it will translate to the brand losing 25-30 cents per share in 2019.
It has been clear from the beginning that Japanese conglomerate Softbank was one of the key forces behind this deal.
The retail giant has not given a specific timetable on profitability.
Flipkart co-founder and executive chairman Sachin Bansal is set to sell his entire 5.5% stake in the company for $1 billion to Walmart, following Walmart's acquisition of 77% stake in the e-commerce company. But it's not profitable.
Walmart has been selling assets elsewhere in preparation for its big move in India. Poor infrastructure complicates home delivery. On one side, this war could shrink the marketplace for small vendors, while, on the other side, this war between Flipkart and Amazon could lead to a vast supply chain and generate a large number of jobs.
"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 (Earnings Per Share) of approximately Dollars 0.25 to 0.30, which includes incremental interest expense related to the investment".
Coming to acquisitions, Flipkart acquired online apparel retailer Myntra at about Dollars 300 million in 2014 and another fashion retailer Jabong for USD 70 million and payment startup PhonePe in 2016.