Flipkart's main investors agree to sell stake to Walmart; Softbank wants better deal: Report

 BusinessToday.In        Last Updated: April 17, 2018  | 13:33 IST
Flipkart's main investors agree to sell stake to Walmart; Softbank wants better deal: Report

 

Four of Flipkart's investors have reportedly agreed to sell their stakes to Walmart , but the newest and biggest investor, SoftBank, is holding out for a better deal.

Citing sources aware of the developments, The Economic Times said that the US retail behemoth has reached an agreement on buying the stakes of New York-based investment firm Tiger Global Management, South African media conglomerate Naspers, venture capital firm Accel and China's Tencent Holdings. The report added that Sachin Bansal and Binny Bansal, the co-founders of the Bangalore-based company , may also sell a part of their stake. These six shareholders collectively hold more than 55 per cent of Flipkart . Walmart would reportedly grab close to 50% ownership if it acquires the stakes of the investors it has reached agreement with.

Last August, Japan's SoftBank bought a 20 per cent stake in the country's leading etailer for $2.5 billion through its $100 billion technology-focused Vision Fund. It was the biggest ever private investment in an Indian tech firm at the time.

 

According to the daily, Walmart is believed to have offered a $10-12 billion valuation to purchase the shares held by the Tokyo-headquartered investor. However, the latter is seeking a better price, estimated at $15-17 billion, through the secondary sale of shares.

"Discussions with SoftBank are still ongoing ... Most of the others have come aboard. In a deal like this, there are always ebbs and flows, but there is a time factor to consider as well," said the source, adding that the final contours of the transaction are still being worked on and could change on a short notice.

Given that the exclusivity period ended a few weeks ago, it is unclear whether SoftBank will continue talks should Walmart manage to clinch a deal with the other shareholders.

The report adds that the deal offered by Walmart - which includes a primary investment apart from the secondary share purchase - values Flipkart at about $20-22 billion. That's 67 per cent more than the $12 billion figure given when SoftBank came on board, and truly impressive for a company that was all but written off in 2016 thanks to valuation loss, leadership issues and an aggressive Amazon.

The sources also told the daily that Amazon has joined Flipkart's list of suitors and is believed to be in talks with several of its shareholders, including SoftBank. However, regulatory hassles may play party pooper here - after all, given the dominant market share the two entities have in the ecommerce space, any Flipkart-Amazon deal is sure to face close scrutiny of the Competition Commission of India. Both Walmart and Flipkart stand to gain much if this long-speculated deal goes through.

To begin with, they get to pool resources to compete against their common enemy, Amazon, in online as well as offline retail channels. Walmart also gets to grab a foothold in India's booming e-commerce industry. It has reportedly tried to enter India for years but has remained confined to a 'cash-and-carry' wholesale business - it currently operates 21 such stores - amid tough restrictions on foreign investment.

According to the report, its push into e-commerce comes as Amazon has embraced offline retail, with an affiliate of the Seattle-based company picking up a $27.6 million stake in Indian retailer Shopper's Stop Ltd.

Meanwhile, Flipkart stands to not only add financial muscle but also strengthen its supply chain and enhance efficiency in procurement, product assortment and retailing. India's leading etailer, besides, has been looking to open retail stores in India for a long time now but has been waiting for the right investment partner. As such, the partnership between Walmart and Flipkart already seems like a match made in heaven.

Furthermore, as the daily has previously pointed out, if Walmart succeeds in its negotiations with Flipkart's existing investors, this will be one of the biggest - not to mention pretty rare - exits in the Indian startup ecosystem.

Consider Tiger Global. Back in 2009, it was the second player to bet on Flipkart, ploughing in a whopping $30 million in two tranches. Despite selling shares worth over $500-600 million last year, its remaining stake of around 20 per cent is estimated to be worth around $4 billion currently.

Similarly, Accel Partners, which led the Series A round in Flipkart with $1 million, has already raked in $150-200 million from its partial exit last year. And, should the Walmart deal crystalise, it will reportedly see the value of its 5-6 per cent stake swell further.

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