Walmart to buy controlling stake in India's Flipkart for $16B

Mergers and AcquisitionsReuters

Walmart buying Flipkart for $16B

FBN's Cheryl Casone on Walmart's acquisition of SoftBank's controlling stake in Flipkart.

MUMBAI/NEW YORK, May 9 (Reuters) - Walmart Inc agreed to pay $16 billion for a roughly 77 percent stake in Indian online marketplace Flipkart, the U.S. retailer's largest deal as it opens up another front to battle rival Amazon.com Inc in one of the world's fledgling e-commerce markets.

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The deal, capping almost two years of on and off talks, will help the Bentonville, Arkansas-based retailer fortify and boost market share against Amazon.com, which also expressed interest in making a competing offer for a stake.

"India is one of the most attractive retail markets in the world, given its size and growth rate," Doug McMillon, Walmart's Chief Executive Officer, said in a statement on Wednesday, adding the deal was an opportunity to partner with a company that is leading the transformation of e-commerce in the market.

McMillon, while addressing a town hall at Flipkart's headquarters in Bengaluru, said Flipkart's Chief Executive Officer Kalyan Krishnamurthy and Group CEO Binny Bansal would continue in their current roles, according to three sources at the event.

Still, shares of Walmart fell 4.2 percent in premarket trade, as the company warned the deal would dent earnings.

The retailer said it expects the transaction to hurt its fiscal 2019 earnings per share by 25 cents to 30 cents, if the deal closes as expected before the end of the second quarter.

"As Flipkart is expected to generate meaningful losses for at least the next few years, this is clearly an investment for the future," said Moody's lead retail analyst Charlie O'Shea in an email, adding it is indicative of Walmart's long-standing strategy of shifting resources into higher potential markets and segments when opportune.

Buying a stake in Flipkart, which sells everything from soaps to smartphones and from books to clothes, gives Walmart access to India's vast e-commerce market that could potentially be worth an annual $200 billion in a decade, according to Morgan Stanley.

DEAL FUNDING

Walmart said it plans to fund the deal through a combination of newly-issued debt and cash on hand.

Its investment will include $2 billion of new equity funding and the company said it remains in talks with other potential investors to join the funding round, Walmart said.

A new investor joining could lower Walmart's stake, but the company plans to continue to retain majority control of Flipkart, it added.

Reuters has previously reported Google-parent Alphabet may buy a roughly 15 percent stake in the company for $3 billion.

The remainder of the business will be held by some of Flipkart's existing shareholders, including Flipkart co-founder Binny Bansal, China's Tencent Holdings, Tiger Global Management and Microsoft Corp, the company said.

The Walmart statement made no reference to the exit of Flipkart co-founder Sachin Bansal or SoftBank Group, which was one of the largest investors in Flipkart through its Vision Fund.

Reuters previously reported that Bansal and SoftBank would sell their entire stakes in Flipkart.

Earlier on Wednesday, SoftBank's CEO Masayoshi Son stole the show by unexpectedly spilling the beans on the deal before it was formally announced, on a conference call.

"The deal reaffirms that there is big opportunity in Indian retail," said Arvind Singhal, Managing Director of retail consultancy Technopak, adding it would attract more global investment into Indian retail.

(Additional reporting by Sam Nussey, Abhirup Roy, Nivedita Bhattacharjee, Siddharth Cavale, Swati Bhat and Devidutta Tripathy; Editing by Euan Rocha, Bernard Orr)

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