The long-standing rumour of a tie-up between Flipkart and the US retail behemoth Walmart Stores Inc is getting louder. In fact, negotiations between the two companies are reportedly in the final stages now, with the latter having wrapped-up its due diligence process. If things go to plan, Walmart will emerge as the desi unicorn's largest shareholder.
Citing sources directly aware of the discussions, The Economic Times said that Walmart might start out with picking up a 20-26% stake in Flipkart and increase it in tranches to 51%. The brick-and-mortar giant could cough up around $10-12 billion for the entire stake purchase. "The primary investment will be between $1-2 billion, depending on the final size of the deal," a source told the daily, which will value the Bengaluru-based company at about $20-22 billion. That's 67% more than the $12 billion figure given when Japan's SoftBank bought a 20% stake in it for $2.5 billion last August.
The report adds that the deal will also include secondary share purchases from existing investors, albeit at a discount to the valuation of primary infusion. Sources claim that negotiations peg the figure in the range of $15-18 billion. A consortium of investors, including SoftBank, Tiger Global, Naspers and Accel Partners, reportedly hold around 68% of Flipkart. Debunking previous media reports, even SoftBank, the newest investor, is apparently mulling a partial exit now, seeing the value of its investment nearly double within a few quarters.
If the negotiations work out, this will be one of the biggest - not to mention pretty rare - exits for investors in the Indian startup ecosystem. Consider New York-based 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% 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% stake swell to about $1billion.
Both Walmart and India's homegrown e-commerce leader stand to gain much if this long-speculated deal goes through. While the former gets to grab a foothold in India's booming e-commerce industry, Flipkart stands to not only add financial muscle but also strengthen supply chain and enhance efficiency in procurement and product assortment. In addition, the deal would enable them to pool resources to compete against Amazon, in online as well as offline retail channels.
Another recent rumour making the rounds is that Walmart's investment deal will include setting up of a retail - offline - chain in India. This would enable the American retail giant to open retail outlets in the country, which it currently cannot do directly because of certain FDI restrictions on overseas investment.
"As large as they (Walmart) are, Amazon has eaten away a significant chunk of their revenues and I think...they view India as the largest market possibly for this (taking on Amazon)," a source said, as mentioned in agency reports. Similarly, Flipkart, too, 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.
Of course, Amazon will put up a stiff fight. Then there is the relatively new entrant Paytm E-commerce Pvt Ltd, not to be taken lightly since it is backed by China's Alibaba Group Holding Ltd. The rat race is likely to get crazier here on. Market research provider Euromonitor expects about half of India's population to be online by 2021, with a majority hailing from rural areas and smaller towns, by which time the Internet retailing market size is likely to balloon to around Rs 4,000 billion.
With Reuters inputs