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Walmart will pay $16 billion for majority stake in Flipkart

In the largest acquisition in its history, Walmart has agreed to acquire India’s leading e-commerce retailer, Flipkart.

After weeks of speculation, Walmart said on Wednesday it has signed a definitive agreement to buy an initial stake of approximately 77% in Flipkart for $16 billion. The remainder of the business will be held by some of Flipkart’s existing shareholders, including Microsoft, Tiger Global Management, Tencent Holdings and Flipkart co-founder Binny Bansal.

Walmart’s deal with Flipkart greatly enhances the discounter’s position in one the world’s largest retail markets and gives it increased firepower against rival Amazon, which considers India one of its key global markets and was also reportedly looking to acquire the Indian company. Walmart said it expects India's e-commerce market to grow at four times the rate of the overall retail industry. (Morgan Stanley estimates the e-commerce market in India will be worth $200 billion by 2026.)

“India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market,” said Doug McMillon, Walmart’s president and CEO. “As a company, we are transforming globally to meet and exceed the needs of customers and we look forward to working with Flipkart to grow in this critical market. We are also excited to be doing this with Tencent, Tiger Global and Microsoft, which will be key strategic and technology partners.”

Walmart said it supports Flipkart’s goal to transition into a publicly-listed, majority-owned subsidiary in the future. Founded in 2007, Flipkart has led India’s e-commerce revolution. Flipkart’s supply chain arm, eKart, serves more than 800 cities, making 500,000 deliveries daily. In the fiscal year ended March 31, Flipkart reported sales of $4.6 billion, according to Walmart.

“The idea to have Flipkart be majority owned by Walmart but publicly traded is a smart move, and also helps explain the massive amount of money that Walmart paid for it,” commented Bryan Gildenberg, chief knowledge officer at Kantar Consulting. “As long as e-commerce companies continue to outperform in the market, it is easy to imagine that Flipkart will eventually be valued at much more than $16 billion.”

With the investment, Flipkart will leverage Walmart’s omnichannel retail expertise, grocery and general merchandise supply chain knowledge and financial strength, while Flipkart’s talent, technology, customer insights and agile and innovative culture will benefit Walmart in India and across the globe. Under the agreement, Walmart and Flipkart will maintain distinct brands and operating structures. (Currently, Walmart India operates 21 Best Price cash-and-carry stores and one fulfillment center in 19 cities across nine states in India.)

“This investment aligns with our strategy and our goal is to contribute to India’s success story, as we grow our business,” said Judith McKenna, president and CEO of Walmart International. “Over the last 10 years, Flipkart has become a market leader by focusing on customer service, technology, supply chain and a broad assortment of products.”

Walmart’s investment includes $2 billion of new equity funding, which will help Flipkart accelerate growth in the future. Walmart and Flipkart are also in discussions with additional potential investors who may join the round, which could result in Walmart’s investment stake moving lower after the transaction is complete. Even so, the discounter would retain clear majority ownership.

The deal is expected to close later this year. Upon closing of the deal, Flipkart’s financials will be reported as part of Walmart’s International business segment.

The transaction will reduce Walmart’s full fiscal year earnings per share by $0.25 to $0.30 if the deal is completed in the retailer’s second quarter.

For analyst commentary on the deal, click here.
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