In a mega deal in India's e-commerce space, global retail giant Walmart Inc on Wednesday announced it was buying 77 per cent equity stake in the country's largest e-tailer Flipkart for $16 billion.
"Subject to regulatory approval in India, Walmart will pay $16 billion (Rs 1,07,662 crore) for 77 per cent equity stake in Flipkart," the Arkansas-based firm said in a statement.
The acquisition of the majority stake makes the $500-billion Walmart the largest shareholder of the city-based Flipkart group and will help accelerate its mission to transform e-commerce through digital technology.
"The investment underscores our commitment to sustained job creation and investment in India, one of the world's largest and fastest-growing economies," said Walmart.
As part of the agreement, 33 per cent of the equity will be with Flipkart co-founder Binny Bansal and institutional investors Tencent Holdings Ltd, Tiger Global Management LLC and Microsoft Corporation.
"Though the focus will be on serving customers and growing the business, we will support Flipkart's ambition to transition into a publicly-listed, majority-owned subsidiary in the future," Walmart said.
The record deal will also give Walmart an opportunity to partner with the local leader in growing market, as the e-tailer's leadership team will be supported by investment and technology partners.
In an investors' call later, Walmart Chief Executive Doug McMillon said India was a priority market for the retail behemoth as the country was the largest and fastest growing economy.
"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," he said.
The deal will benefit India in providing quality, affordable goods for customers and create skilled jobs and opportunities for small suppliers, farmers and women entrepreneurs.
"India is one of the most attractive retail markets, given its size and growth rate and our investment is an opportunity to partner with Flipkart that is leading transformation of e-commerce in the market," McMillon said.
Observing that Walmart's investment was significant and would help fuel the e-tailer's ambition to deepen its connection with buyers and sellers, Bansal said though e-commerce was a small part of India's retail sector, he saw a great potential to grow.
"Walmart is the ideal partner for the next phase of our journey and we look forward to working with it to bring our strengths and learnings in retail and e-commerce to the fore," he said.
Founded in 2007, Flipkart has led the e-commerce revolution in the sub-continent, growing rapidly and earning customers' trust with digital technology, including artificial intelligence to hard-sell a wide range of goods spanning electronics, appliances, mobile, fashion and apparel.
With platforms such as Myntra, Jabong and PhonePe, Flipkart is positioned to leverage its integrated ecosystem, which is defined by localized service, insights into customers and an efficient supply chain.
Its supply chain arm, eKart, serves 800 cities, making 5,00,000 deliveries daily.
In 2017-18, Flipkart recorded Gross Merchandise Value of $7.5 billion and net sales of $4.6 billion, representing 50 per cent year-on-year growth.
Flipkart will leverage Walmart's omni-channel retail expertise, grocery and general merchandise supply-chain knowledge and financial strength, while its talent, technology, customer insights and innovative culture will benefit the US retail giant in India and elsewhere.
Post-acquisition, both the partners will leverage their strengths but will maintain their distinct brands and operating structures.
"We operate 21 best price cash-and-carry stores and one fulfilment centre in 19 cities across nine states, with 95 per cent of sourcing from the country, aiding suppliers, creating skilled jobs and contributing to local economies," said Walmart India Chief Executive Krish Iyer.
Meanwhile, Walmart's foray into India's online retail space made industry expects say the deal would make India an attractive destination for global majors to invest in the e-tail segment.
"The deal indicates attractiveness of India's consumption market for global majors... we expect greater thrust on the online grocery segment," said rating agency Crisil Research director Ajay Srinivasan in a statement here.
Terming the buyout a Rs 1 lakh crore all cash deal, Paytm Founder Vijay Shekar Sharma tweeted that it was a perfect answer to those who were dismissive of Indian start-ups in an open-for-all market.
In another tweet, biotechnology major Biocon Chairperson Kiran Mazumdar-Shaw said the deal was an endorsement for India's first e-tailing company.
"It's capital intensive business that needs deep pockets which Walmart has," she tweeted.
"We expect the status quo to remain within the year after the mega deal. It's an extension of the $500-billion Walmart's global expansion strategy," noted advisory firm Gartner director Adrian Lee in a statement.
Really sad to see Sachin leave Flipkart, says co-founder Binny Bansal
They were considered the Jai-Veeru of Indian startup panorama, and when one decided to finally exit the company they founded 11 years ago it was really a sad moment for the other.
Sachin Bansal’s decision to exit Flipkart after its takeover by Walmart was a “very emotional moment”, said the company’s co-founder Binny at a select media briefing on Thursday.
Asked if he didn’t try and convince Sachin to stay on, Binny, 35, said: “That’s an understatement.”
As US retailer Walmart acquired a majority stake in Flipkart, Sachin sold his 5.5 per cent stake for about USD 1 billion and exited the company.
The two Bansals are not related but came to know each other as they were passing out of Indian Institute of Technology, Delhi, in 2005 and decided to move to Bangalore, now known as Bengaluru.
They launched Flipkart in 2007 as the ‘Amazon of India’. It was valued at close to USD 21 billion as Walmart yesterday bought 77 per cent stake in it for USD 16 billion.
While Binny decided to continue with the company, Sachin, 36, exited.
“More than anything else, it is a very emotional moment for all of us. Sachin and I go a long way. We met in 2005 when we were passing out (of IIT, Delhi). Both of us moved to Bangalore. We were a group of 8 friends from IIT Delhi and we used to hang out together all the time and we were best of friends,” said Binny recalling the Flipkart journey.
“I think both of us have been sort of a pillar of support to each other,” he said, wishing Binny very best for his future endeavours.
In a Facebook post, Sachin said his work at Flipkart “is done” and “it’s time to hand over the baton and move on”.
After moving to Bangalore, Sachin joined Amazon and recommended Binny, earning an employee recommendation bonus.
He, however, had to soon return it as Binny left Amazon in just 8 months.
The two then started a company together with Rs 4 lakh capital. Just like Amazon, it started with selling books online.
“We would do whatever it takes to do the business. He and I would ride my bike for 40-50 km every day in Bangalore, picking up books from various distributors, coming back, packing them (for dispatch to customers who had ordered),” Binny said.
The company has since grown and crossed 100 million registered customers in 2016.
“If I go back 10 years, it’s just amazing how we started what we did. Through the last 10 years one thing which really held both of us together was the shared values and making sure we do the right thing for customer always,” he said adding both ensured that they thought big and audacious.
A lot of Flipkart values, he said, come from the strong belief that Sachin brought and helped bring strong foundation.
But like most investor-driven companies, there comes a time when a debate happens on founder versus non-founder.
In 2016, Sachin became executive chairman, as Binny replaced him as CEO. A few months later, Kalyan Krishnamurthy, a senior executive from Flipkart’s largest investor, Tiger Global, who was interim CFO at the e-commerce giant in 2013-14, came back as head of category design.
Soon, he tightened the targets and fired quite a few senior executives for poor performance. On January 9, 2017, Kalyan was declared Flipkart CEO — the first non-founder CEO of an Indian startup Unicorn, while Binny became Flipkart Group CEO.
