Walmart Inc., the world’s largest retailer, has agreed to buy India’s leading online retailer Flipkart, paying $16 billion for a controlling stake of 77 percent.
Flipkart gives Walmart access to a market it has been trying to crack for years. The Arkansas-based retailer has been restricted by local regulations to operating wholesale outlets in the world’s fastest growing economy.
“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,” Walmart CEO Doug McMillon said in a statement.
Walmart will pump $2 billion in fresh investment into Flipkart as part of the deal. It could also bring in “additional potential investors” while retaining a majority stake, chief financial officer Brett Biggs said on a conference call.
Flipkart’s strong presence in sectors such as fashion, electronics and digital payments were major factors behind Walmart’s decision to buy the company, McMillon said.
Theodore Schleifer of Recode reported that there are big winners in the deal:
More than any other fund, the elite and low-profile New York investment vehicle Tiger Global bet aggressively on Flipkart. And it’s paid off.
The firm, which has specialized in venture capital investments in China and India, is selling about 75 percent of its shares in the deal, which will bring the fund about $3 billion, according to a person close to the firm. Tiger first backed Flipkart in 2009 with $9 million but repeatedly doubled down on the Indian company as it matured — Tiger, which has $11 billion in assets its venture capital funds, would go on to lead several later Flipkart financing deals.
Some rivals quietly saw those repeated Tiger investments as a mistake given Amazon’s desire to compete in South Asia. But led by Lee Fixel, one of the most well-connected and well-known U.S. investors in India, Tiger ended up investing about $1 billion into the company. Before it sold some shares to SoftBank in 2017, Tiger owned about one-third of the company, the person said.
Those investments are now validated. Tiger’s total stake, now at about 20 percent, is worth about $4 billion, including the $1 billion in shares it has kept. The sale is said to be one of Tiger’s three biggest exits, alongside Spotify and JD.com.
Sarah Halzack of Bloomberg wrote that the deal represents Walmart’s best shot in India:
The big-box giant is right to pay up for the chance to make a big splash in India. The country’s e-commerce market is expected to experience explosive growth in the coming decades, so any retailer should see it as a covetable prize.
For Walmart, hitching its wagon to Flipkart probably represented its best shot at winning in India. The regulatory environment there has made it difficult for Walmart and other international retailers to make inroads, according to Satish Meena, an analyst at Forrester Research.
And Flipkart has an established track record of success. In its latest fiscal year, it recorded $7.5 billion in gross merchandise volume, which represented growth of more than 50 percent over the previous year. So far, it is withstanding Amazon’s challenge, retaining its position as the market-share leader.