JOIN USWalmart, the retail giant from the United States, on Wednesday formally announced its acquisition of 77% of stake for a total investment of $16 billion.
The retail giant is also expected to infuse $2 billion of fresh equity into the India's ecommerce major. As part of the deal, co-founder and executive chairman Sachin Bansal will exit completely, selling his 5.5% stake. Binny Bansal will sell about 10% of his current holdings, lowering his stake to about 4.5% from the current 5.1%.
Binny Bansal, will take over as the as the new Executive Chairman and Group CEO of Flipkart, implying he will also be steering the ship for Myntra, Jabong and PhonePe.
The acquisition by Walmart is also backed by Google with an investment of $1.5billion, and will get 7% stake. The valuation of the company has been raised from $18 billion to $20.78 billion.
The remainder of the business will be held by some of Flipkart’s existing shareholders, including Tencent Holdings, Tiger Global Management and Microsoft. Flipkart hopes that Walmart's supports will help former's ambition to transition into a publicly-listed, majority-owned subsidiary in the future.
“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,” Doug McMillon, Walmart’s president and chief executive officer said.
The acquisition will see how the world’s largest brick-and-mortar retailer Walmart adjusts in India to an ever growing ecommerce business. Its online-offline strategy in the United States will give an edge for the company to take on the competition of Amazon India.
In the fiscal year ended March 31, 2018, Flipkart recorded GMV of $7.5 billion and net sales of $4.6 billion claiming more than 50% year-over-year growth in both cases.
The company raised the fund to invest in Flipkart after selling its UK subsidiary ASDA to Sains Bury for $10 billion.
Flipkart, founded by IIT graduate Sachin Bansal and Binny Bansal in 2007, has become a leading ecommerce platform with a total user base of over 100 million.
The company, which was formed with an initial capital of Rs 4 lakh and then witnessed a total investors of 142, raised total funds to the tune of over $6 billion till now.
During the last transaction, Flipkart raised $2.5 billion from Masayoshi Son’s Soft-Bank Vision Fund, through a mix of direct fuding termed as primary investment and the purchase of shares from existing shareholders as secondary investment.
Soft Bank funding in 2017 August valued the company at about $12.5 billion when it raised $2.5 billion from Masayoshi Son's SoftBank Vision Fund in August 2017.
According to Chief Executive of advisory services firm GrowthEnabler, Rajeev Banduni Walmart's acquisition is necessitated by saturation in the US market and retailing is incurring huge losses there.
"In the US the company wounded up 150 Sam's Club stores in 2016 because of low footfall. The company's sales was contracting and Brazil and European market and it is making sense to invest in India which is growing exponentially,"said Banduni.
Flipkart acquired 11 companies and invested in seven companies. The Indian ecommerce market is expected to grow from $38.5 billion as of 2017 to $188 billion by 2025, and is expected to surpass the US to become the second largest ecommerce market in the world by 2034.
Analysts feel that it is going to increase competition in India's ecommerce market.
“I see the competition getting more aggressive as Amazon counteroffers Walmart for a stake in Flipkart. Both have their own sizeable cash reserves, and the outcome in India will determine the access to its growing middle class consumers for dominance, outside of the US," Adrian Lee, Research Director, Gartner.