And the Chosen One is Walmart: Retail Giant buys 77% share of Flipkart following weeks of intense speculation
No more speculation. It is official. Flipkart has sold 77% of its stake to retail giant, Walmart, and the amount is no less than $16 billion. According to Entrackr, the company released a statement saying that the remainder of the stakes will be held by Flipkart co-founder Binny Bansal, and existing shareholders like Tencent Holdings Limited, Tiger Global Management LLC, and Microsoft Corp.
While Walmart has included a new $2 billion equity funding, discussions are still on for other potential investors diving into what is the largest deal in the online retail sector, worldwide. On the chance other investors join the round, Walmart’s investment stake might decrease eventually.
The deal is definitely Walmart’s triumph over its online retail rival, Amazon, in a long-drawn out bid for selling in the potent Indian online retail market. Walmart, while being the largest retail company in the world, has been struggling against Amazon’s online reach in the US.
Meanwhile, Sachin Bansal, Flipkart co-founder, has quit Flipkart after having sold his 5.5% stake for around INR 6,700 crore. Another weighty investor to exit is South African Internet and entertainment firm Naspers, which has sold its 11.18% stake to Walmart for $2.2 billion.
Recently, Flipkart, which was originally a Singapore-incorporated company, had bought back around $350 million worth of its shares from its investors in order to make it a private limited firm.
Meanwhile, local online sellers are nervous about the deal because the $500 billion retail giant Walmart is known to wipe out local sellers with its ultra-low pricing. The sellers’ association, Swadesh Jagaran Manch and Confederation of All India Traders (CAIT) have asked for a probe into the deal in spite of assurances from Walmart that Flipkart will remain local.
The deal allows entry to one of the biggest foreign investors into the Indian market, which could have belonged to one of our homegrown multi-billionaire companies, if they hadn’t overlooked the potential of what started as an online bookstore run by two young men. While the regret must be apparent, experts reflect that India has failed to sustain a local champion, an area in which China succeeded with Alibaba.
“Some of the top 10 Fortune 500 companies in the US are tech companies. In the next 10 years from India, how will that happen? Other industries are equally important but the market cap will come from tech companies,” The Economic Times quoted K Ganesh, founder of startup incubator GrowthStory. “Those who invested in Flipkart are those who took the bold bets instead of criticising valuations and unit economics. Unless one takes bold bets how will you play the market later?”
With the current deal, basically, the money that Flipkart has earned over the years from Indian online shoppers has gone to foreign investors like Japanese company SoftBank, South African media group Naspers, Chinese company Tencent, and US technology giant Microsoft. In addition, they have now made hefty returns while exiting the company through the deal.
Flipkart’s story is the stuff that legends are made of. Hence, this deal will encourage many existing startups to think out of the box when it comes to exiting, and at the same time, it reveals India as hot spot for potential market to global business players.
“The valuation outcome that Flipkart has garnered (of nearly $21 billion) has blown past even that of an IPO. This is a signal for entrepreneurs to not rush into an IPO because there are better exits if one disrupts the market enough, does not cede ground and attempts to gain market share whatever be the cost,” The Economic Times quoted Anand Lunia, general partner at early-stage venture capital fund India Quotient. “Value does not lie only in having a profitable IPO-led business. Flipkart has shown that.”
However, the deal now opens up India’s angel investing ecosystem, which has been dipping in the recent years, after seeing a boom in 2015. With ESOPs available to Flipkart employees, at least some amount of the capital is expected to be poured back into the startup ecosystem.