Walmart Stores Inc. is set to become Flipkart’s largest shareholder as negotiations are being finalized. Walmart could buy around 20-26% stakes in the Indian company and improve its shareholding rights to 51% in tranches, according to reports. India’s biggest online retail company, Flipkart is luring the world’s largest brick-and-mortar retailer in its ranks before yet another face-off against American retailer Amazon in the India e-commerce market.
The American retail giant might invest $10-12 billion for the entire stake purchase in a deal that will include the acquisition of shares owned by existing investors with the likes of Softbank, the Japanese telecom and internet giant, according to two anonymous sources close to the company.
“The primary investment will be between $1-2 Bn, depending on the final size of the deal. The rest will be Walmart buying shares from other investors,” said one of the anonymous source cited above.
The primary investment will raise the valuation of Flipkart at about $20-22 billion, which is almost double the valuation of April 2017, when it raised funds in an investment round led by Chinese internet giant Tencent. A few months later, in August 2017, Flipkart’s valuation soared to $14.2 billion when SoftBank fueled in more capital in the e-commerce company. Walmart however also aspires to take the lead of the company if the deal goes through.
Walmart is also trying to negotiate with Flipkart’s early investors and among their biggest shareholders such as South African media giant Naspers and New York-based Tiger Global for secondary share purchase, marking one of the biggest investors exits in the Indian startup world.
Tiger Global has invested over $1 billion into Flipkart and has since sold back over $500-600 million worth of shares last year. The remaining 20% stake they still own in the Indian company is speculated to value close to $4 billion currently. Lee Fixel, the person behind Tiger Global’s investment in Flipkart is said to be “parked between SoftBank headquarters in Toyko and Walmart’s headquarters” as he is actively working on finalizing the negotiations with Walmart and put pen on paper.
Flipkart and Amazon are clearly making the best out of their resources to beat each other out of the very competitive e-commerce Indian market. Flipkart has amassed massive amounts of money over the last year to improve their customer service. On the other hand, Amazon is making its intention clear after committing $5 Bn worth of investments in building logistics infrastructure and convincing customers with exorbitant discounts and the Amazon Prime Video.
Amazon founder, Jeff Bezos, did not hesitate to voice out his ambition of having monopoly of the Indian retail market, both online and offline as he eyes to own a major portion of a market projected to be worth $1.3 trillion by 2020. Flipkart’s partial acquisition by Walmart is the last opportunity present to tackle Amazon. Additionally, Paytm Mall is set to hit the e-commerce market by storm as well, strong from a major backing by Alibaba and probably a $500-600 million round funding by Japan’s SoftBank.
The importance of the Walmart-Flipkart deal also witnessed Walmart’s CEO Doug McMillon visiting Flipkart’s Bengaluru office in January accompanied by a VIP party made up of Marc Lore, CEO of Walmart e-commerce and Judith McKenna, CEO of Walmart International. Part of Walmart’s negotiations is a proposal to open a chain of retail stores in India.
While the valuation of the primary infusion comes at a $20-22 billion valuation, the share purchase from existing investors will happen at a discount rate with the valuation set to range from $15-18 billion. However, this deal will be a major profit for all the early Flipkart investors. For example, Flipkart’s first institutional backer Accel India first invested $1 million in 2009 when the company was only worth $5 million. While the VC firm already received $150-200 million from the shares they already sold, the remaining 5-6% stake they still possess will inflate to about $1 billion.