Walmart close to putting a $US12bln ring on Flipkart, leaving Amazon in the dust

Walmart Inc. (NYSE: WMT) is close to finalizing a deal to buy a majority stake in India’s leading e-commerce company for at least US$12bln and may complete the agreement in the next two weeks, reported Bloomberg on Monday.

Walmart shares were down 0.85% to US$86.23 in morning trading.

“All the major investors in Flipkart are now on board with the Walmart purchase, after an earlier debate over an Amazon.com Inc. (NASDAQ:AMZN) acquisition,” people familiar with the matter told Bloomberg, asking not to be named because the matter is private.

Tiger Global Management will sell nearly all its 20% stake in Flipkart, while Japan’s Softbank Group, will offload a substantial part of its 20%-plus holding, reported Bloomberg.

Walmart will likely end up with 60% to 80 percent of Flipkart, valued at about $20 bln, the people familiar with the deal, told Bloomberg.

Amazon pushed aside in India

A David and Goliath battle rages in India between Flipkart and Amazon, which are both hoping to dominate the Indian e-commerce market. Flipkart currently controls nearly 40% of India’s online retail market, ahead of Amazon, showed estimates by researcher Forrester.

The battle is compounded by the fact that there’s great national pride surrounding successful local companies like Flipkart which have shot like meteors from India’s Silicon Valley Bangalore. Ironically, Flipkart was founded by two former Amazon employees Sachin Bansal and Binny Bansal in 2007.

India’s Mint newspaper first reported that Amazon actually held early exploratory talks to buy control of Indian rival Flipkart.

Read: Walmart backs Indian underdog to stop Jeff Bezos’ empire building

Analysts told Proactive Investors on April 5 that a Flipkart deal with Amazon was “highly unlikely” as it could spark “monopoly concerns” as both these companies dominate India’s e-commerce market.

The analyst also said that Flipkart had “competed for far too long against Amazon” to now sell a 40% stake to it.

Under the circumstances, Walmart is a far more attractive buyer that will give Flipkart much-needed muscle in its fight against Amazon.

A marriage between Walmart and Flipkart will allow the big box US retailer to finally make serious inroads into India, a market that has long eluded it. Walmart currently operates 21 wholesales stores in India, but none of them can sell directly to consumers by the Indian government which has protectionist policies in place to protect domestic retailers.

A Flipkart deal would open a new front for Walmart in its efforts to take on Amazon, giving the world’s largest brick-and-mortar retailer access to an Indian e-commerce market that Morgan Stanley has estimated will rapidly grow to be worth US$200 bln in a decade.

Story by ProactiveInvestors