Walmart, the largest brick-and-mortar store operator globally, is planning to purchase 40 percent stake in Indian e-commerce giant Flipkart. The deal would be one of the biggest overseas deal for the American multinational retail company.
According to Reuters, Walmart is looking at buying new and existing shares in Flipkart and due diligence is likely to begin as early as next week. The terms of the deal would see Flipkart being valued at more than $12 billion assigned by Japan’s SoftBank Group recently. SoftBank bought nearly a fifth of the e-commerce firm last year for $2.5 billion as part of its $100 billion Vision Fund.
Flipkart is the market leader in India’s e-commerce business, but it has come under significant threat from Amazon. The Seattle-based e-commerce giant, Amazon, is planning to invest $5 billion in India as it expands aggressively into more markets and has started delivering online grocery and created its own private label brands too.
A deal with Arkansas-based Walmart would give Flipkart additional cash flow to fight Amazon in Asia’s third-largest economy. Walmart’s retail business is under threat with the rise of e-commerce platforms, which Morgan Stanley estimates to become $200 billion in a decade. The retailer has made a huge push towards e-commerce and it acquired a slew of startups in this space include a $3 billion purchase of online retailer Jet.com. Walmart has also started online grocery deliveries in partnership with Japan’s Rakuten Inc.
In the past, Walmart has tried to enter India and start its retail stores here, but due to restrictions on foreign direct investment in retail sector, the company got confined to ‘cash and carry’ wholesale business. According to Crunchbase, Flipkart is valued at around $15 billion and its current investors include eBay Inc, Tiger Global Management, China’s Tencent Holdings Ltd and Microsoft Corporation.
Last year, Flipkart had raised $1.4 billion from Tencent, eBay and Microsoft and it had recently claimed that it has enough cash reserves to compete with Amazon. Market analysts believe that Flipkart may be big but Amazon has both money and market expertise to fight the Indian brand. Amazon has already eaten away some of Flipkart’s core market and with Walmart, it might find a better partner to compete.