Indian online retail giant Flipkart has approved a bid from a group of investors led by Walmart to purchase a 73% stake in the company. In addition, SoftBank will sell its current 20% stake in the company as part of proceedings. One of Flipkart's co-founders - Sachin and Binny Bansal - will reportedly leave the company after the deal is complete, though the rest of the company's leadership is reported to remain unchanged.
Sources familiar with the matter say that the valuation of Flipkart is at least $18 billion, with some suggesting that the number goes up to $22 billion, with Walmart and co. having to shell out as much as $15 billion to acquire their majority stake in the company, out of which Alphabet Inc. will reportedly contribute $3 billion from its end. Some sources also say that the deal will be completed through a mix of both cash and stock trade.
Flipkart is also to reportedly engage in stock buybacks in order to go private, a move that will likely make the transition of the majority stake smoother by reducing the number of shareholders.
The reason for Walmart's decision here is more than likely that the Indian government does not allow foreign direct investment in multi-brand retail chains, effectively blocking Walmart from setting up shop in the country. Flipkart's existing grocery delivery service therefore could act as a proxy of sorts for the American retailer. Per one source:
"Building the agri-supply chain was the single largest driver in the deal… Walmart’s focus on foods isn’t changing, be it physical retail or e-commerce. One has to look at traceability and tracking in the food supply chain… Walmart is going big on farm-to-home."
This comes hot on the heels of reports that state Amazon's interest in acquiring Flipkart, though as it would seem, Flipkart had its sights on something different.
Walmart also has plans to incorporate blockchain tech into its supply chain in India through Flipkart - very similar to the system it has in place in China through its partnership with JD.com (the country's second-largest retailer, after Alibaba), IBM and Tsinghua University National Engineering Laboratory for E-Commerce Technologies in the Blockchain Food Safety Alliance.
The deal isn't yet fully ascertained, and its terms could still change by the time it actually gets around to being announced, but a proper close is expected to occur in ten days.
Source: Bloomberg | Image: FactorDaily
