Perhaps it's time for Walmart to finally bring out the bubbly. Having shelled out approximately $16 billion for an initial stake of approximately 77 per cent in Flipkart - the world's biggest e-commerce deal - the US brick-and-mortar behemoth had a couple of anxious weeks when SoftBank reportedly had second thoughts about selling its stake in the Bangalore-based company. But now, according to The Economic Times, the Japanese conglomerate has finally agreed to sell its entire 21 per cent stake in Flipkart to Walmart.
SoftBank CEO Masayoshi Son's indecisiveness had reportedly stemmed from two factors - the significant tax liability involved and his reluctance to miss out on Flipkart's potential valuation jumps in the future.
At a recent press conference in Tokyo, Son had disclosed that SoftBank's $2.5-billion stake in Flipkart, picked up last August, would be worth $4 billion if it chose to exit. Recognising that a big chunk would end up in the taxman's pocket - short-term capital gains tax in the hands of foreign investors is 40 per cent while long-term capital gains tax is lower - SoftBank reportedly was mulling holding on to its stake for up to a year longer. Besides, since SoftBank's fund is registered in Jersey, USA, there is no Double Taxation Avoidance Agreement (DTAA) as a buffer. Nonetheless, sources told the daily that SoftBank has now decided to sell the stake and work out the tax issues.
In the meantime, the buzz is that SoftBank is already exploring other avenues since it is unwilling to miss out on India's e-commerce boom. It has reportedly held early discussions to invest as much as $3 billion in Paytm Mall, run by Paytm E-commerce Pvt. Ltd - just last month, SoftBank had invested $400 million (Rs 2,600 crore) for 21 per cent stake in the company also backed by China's Alibaba Group. Citing a source, the daily added that SoftBank could be freed from a clause in its agreement with Flipkart that restricts it from investing more than $500 million in Paytm Mall until 2020. These talks could only proceed once SoftBank finalised its exit from Flipkart, and since it has now apparently made up its mind to do so, it's game on for Paytm Mall.
Such a play makes sense when you consider that Paytm Mall has already replaced Snapdeal as the third-largest player after Flipkart and Amazon India in just 14-odd months of launch. To remind you, SoftBank had invested over $600 million in Snapdeal in October 2014 to emerge as its biggest stakeholder. The Japanese investor subsequently pushed hard for a merger between Snapdeal and its arch rival Flipkart in order to take on Amazon, but the deal fell apart and SoftBank has since written off its investment. It probably hopes to get lucky a second time round in the country's three-way race for the ballooning e-commerce pie, which is expected to grow at a 21 per cent CAGR over the next 10 years to $202 billion.