Walmart announced Wednesday that it has bought a 77 percent majority stake in Flipkart, India's largest online retailer, for $16 billion. It is the biggest ever merger and acquisition (M&A) transaction in India this year.
Walmart's investment includes $2 billion in new equity funding, which the companies say will be used to spur Flipkart's growth. While further investments in Flipkart could bring down Walmart's overall stake in the company, it said that it would retain "clear majority ownership".
Google parent Alphabet Inc is seen to be the potential investor who may get as much as 15 per cent. Walmart's business in India was previously focused only on selling items directly to small businesses though its Best Price stores.
The fresh funds will provide more arsenal to Amazon, which has been aggressively investing in expanding infrastructure and adding solutions to enhance consumer and seller experience.
S&P lowered Walmart's outlook to negative from stable, citing increasing leverage and risks stemming from the company's spending to expand online and globally as it continues its share buyback program.More news: Everton must offload players to make room for quality - Allardyce
The world's largest retailer confirmed after days of media reports that it will acquire 77% of Flipkart, with that company's co-founder Binny Bansal and other investors keeping the rest. South African internet and entertainment firm Naspers, which had invested United States dollars 616 million in Flipkart in August 2012, sold its entire 11.18 per cent stake in the company to Walmart for USD 2.2 billion. "We are also excited to be doing this with Tencent, Tiger Global and Microsoft, which will be key strategic and technology partners", McMillon explained.
The Forrester analyst explained: "To remain the number-one player in India - Amazon coming a close second in just four years in India - [Flipkart is] looking to expand beyond smartphones and fashion". He's certainly mindful of past missteps overseas, such as his 2011 decision to buy an unprofitable, second-tier online marketplace in China that's forced the company to play catch-up to Alibaba - the Amazon of China - ever since. Wal-Mart is the biggest player in the US market, capturing 17.3% (as of 2016) of USA food and beverage retail sales. Amazon boss Jeff Bezos has committed more than $5 billion to grabbing a big slice of India's e-commerce pie after failing to make inroads in China.
Walmart India now operates 21 Best Price cash-and-carry stores and one fulfillment center in 19 cities across nine states in India, with more than 95% of sourcing coming from India.
Binny Bansal, Group Chairman at Flipkart, will continue to serve the company, after the completion of acquisition process.
But the size of Walmart's Flipkart deal, about five times what it paid in 2016 for jet.com, and the uncertainty of the impact on Walmart's profitability discomfited investors.