Walmart, Inc. will pay $16 billion for a roughly 77% stake in Indian e-commerce firm Flipkart – the US retailer's largest-ever deal – in an attempt to compete with rival Amazon.com, Inc. in a key growth market.
It expects the transaction to hurt fiscal 2019 earnings per share by 25 cents to 30 cents if the deal closes before the end of the second quarter.
"We will not know for five to ten years whether this transaction is successful, strategically or financially," said Steven Roorda, portfolio manager with Minnesota-based Stonebridge Capital Advisors.
"Walmart has a very poor track record operating outside North America," Roorda said.
New Front
The deal opens a new front in Walmart's battle with Amazon, which had expressed interest in making a competing offer for a stake.
Amazon now holds about 27% of India's burgeoning e-commerce market, according to Euromonitor, where Walmart only operates 21 cash-and-carry wholesale stores in the country that sell to businesses.
"[The purchase is about] setting the company up for growth and profits in the future," Walmart chief executive Doug McMillon said on a call with investors.
Walmart said that Flipkart's logistics, payments and apparel businesses offer new areas of growth.
Flipkart sells consumer goods ranging from soaps to smartphones and clothes, giving Walmart access to an e-commerce market that could be worth $200 billion a year within a decade, according to Morgan Stanley.
International Focus
The acquisition underscores Walmart's renewed focus on fixing its international business and catching up with competitors in key markets.
It follows Walmart's decision to retreat from Britain by selling a controlling stake in its British arm, Asda, to J Sainsbury Plc.
Walmart is also trying to offload a majority stake in its Brazilian operations to private equity firm Advent International.
Walmart said that it plans to fund the deal through a combination of newly issued debt and cash on hand.
Its investment will include $2 billion of new equity funding, and the company said that it remains in talks with other potential investors to join the funding round.
A new investor could lower Walmart's stake, but the company plans to continue to retain majority control of Flipkart. Reuters previously reported that Google parent Alphabet may buy a roughly 15% stake in Flipkart for $3 billion.
The remainder will be held by existing shareholders, including Flipkart co-founder Binny Bansal, China's Tencent Holdings Ltd, Tiger Global Management and Microsoft Corp, the company said.
Management Exit
The Walmart statement made no reference to the exit of Flipkart co-founder Sachin Bansal or SoftBank Group, which was one of the largest investors in Flipkart through its Vision Fund.
Reuters had previously reported that Bansal and SoftBank would sell their entire stakes in Flipkart.
"The deal reaffirms that there is big opportunity in Indian retail," said Arvind Singhal, managing director of retail consultancy Technopak, adding that it would attract more global investment into Indian retail.
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
