Even as media reports suggest that the negotiations between Walmart and Flipkart are in the final stages, Amazon has just bowled a googly. According to Mint, the world's largest online retailer may submit a rival offer for the homegrown unicorn. Sources in the know told the daily that Amazon has held early exploratory talks to buy Flipkart. The offer certainly makes sense: The intense rivalry between the two e-tailers has been good for the consumers thanks to the discounts, but tough on both their bottomlines.
Incidentally, the buzz last month was that Google, too, was keen to invest in Flipkart, which has cornered nearly 40 per cent of the domestic e-tail pie to emerge as the current leader in the space. However, the sources mentioned above said that the deal with Walmart is more likely to go through.
The report says that US brick-and-mortar retail behemoth is looking to buy a 55 per cent stake in a deal that could value Flipkart at $21 billion. That's 67 per cent more than the $12 billion figure given when Japan's SoftBank bought a 20 per cent stake in it for $2.5 billion last August, 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 deal will include secondary share purchases from existing investors, albeit at a discount to the valuation of primary infusion. Flipkart investors are expected to sell much or all of their shares, the sources added.
A consortium of investors, including IDG Ventures, Tiger Global, Naspers and Accel Partners, reportedly hold around 68 per cent of Flipkart. Debunking previous media reports, the rumour is that even SoftBank, the newest investor, is apparently mulling a partial exit now, seeing the value of its investment nearly double within a few quarters.
As The Economic Times previously pointed out, 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 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 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. Walmart has reportedly even wrapped-up its due diligence process so an announcement may not be far off.
With agency inputs