Walmart Buying 77% Stake in Flipkart for $16B

Walmart Inc. (WMT) made it official, announcing Wednesday that it is paying $16 billion to acquire a 77% stake in Flipkart Group, one of India’s leading e-commerce players. The announcement puts to bed speculation over the deal, which was expected to be announced sometime this week. Walmart bested Amazon.com Inc. (AMZN), which had reportedly made a competing offer for the online retailer.  

In a press release the Bentonville, Arkansas retailer said the deal still needs the approval of regulators in India and that once it is complete it will own 77% of Flipkart with the remainder of the business being held by existing shareholders including Flipkart co-founder Binny Bansal, Tencent Holdings, Tiger Global Management and Microsoft Corp. (MSFT).  Walmart noted the company is supporting Flipkart’s eventual plans to become a publicly listed company. (See more: Flipkart Board Backs Walmart Offer Over Amazon.)

“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 eCommerce in the market,” said Doug McMillon, Walmart president and chief executive officer said in prepared remarks “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.” (See also: Amazon Sees Groceries as Bulk of Indian Business.)

Walmart Could Bring in More Investors 

The investment in Flipkart includes $2 billion of new equity funding which the Indian online retailer will use to accelerate growth. The two are also in talks with other potential investors who could join the round, lowering Walmart’s investment stake once the deal is complete but still maintaining a clear majority of the company. Tencent and Tiger Global will stay on the Flipkart board, which will also include Walmart executives and independent members. To fund the $16 billion transaction Walmart plans to use newly issued debt and cash on hand. The retailer expects the deal to have a negative EPS impact in fiscal year 2019 of $0.25 to $0.30. In fiscal year 2020, it should have an EPS headwind of about $0.60 comprised of operating losses of about $0.40 to $0.45 a share and interest expense of about $0.15 a share. Walmart expects to maintain its share buyback program and maintain its credit profile even with the deal.

Flipkart to Operate on Its Own

Walmart and Flipkart plan to operate as distinct brands, with their own operating structures in India. Walmart India currently operates 21 Best Price cash and carry stores and fulfillment centers in nine states across the country. Walmart said that more than 95% of the sourcing for that business comes from India. Krish Iyer, president and chief executive officer of Walmart India, will continue to lead that part of the operations. “This investment is of immense importance for India and will help fuel our ambition to deepen our connection with buyers and sellers and to create the next wave of retail in India,” said Binny Bansal, Flipkart’s co-founder and group chief executive officer in the same press release. “While e-commerce is still a relatively small part of retail in India, we see great potential to grow.”