It is big news in the world of business and e commerce in particular: it was announced that the Indian company Flipkart would be acquired by Walmart. The official announcement was made in May 2018 though negotiations were ongonig for much longer. We look at the details of the deal and at the nuts and bolts of taking over a company in a country such as India and whether the deal will face hurdles in spite of the recently cleared 100% foreign direct investment policy.
In 2016, the revenue of American giant Walmart was US$ 480 billion. This makes it the largest company in the world by revenue. The chain of discount department stores, hyper marts and grocery stores is also the world’s largest private (non government) employer with 2.3 million employees.
Founded by Sachin Bansal and Binny Bansal in 2007 Flipkart started out as an online bookstore. Over the years Flipkart made acquisitions and added features to offer a huge and varied inventory of products with highly competitive prices. As of date, it is valued at $20 billion.
Walmart Inc will acquire a 77% stake in the Indian online shopping portal for $16 billion, making this the biggest ever e commerce deal in the world. Walmart is looking to offer competition to Amazon’s global expansion and will be ploughing in an additional $2 billion of fresh investment into Flipkart.
Negotiations began almost two years ago, with Walmart then looking to acquire a minorty stake in Flipkart. With this major divesting of Flipkart, reports say that Sachin Bansal will exit the company while Binny Bansal will remain invested in the company. Walmart CEO Doug McMillon has announced that the Flipkart brand will remain distinct from the Walmart brand; even as Walmart will look to empower the brand.
Walmart already has a significant business presence in India, generating annual revenues in the region of about Rs 43,700 crores here according to some estimates. By acquiring Flipkart, which includes subsidiaries such as eBay India, Jabong and Myntra, revenues are set to increase significantly.
Currently, Rosnet’s Essar Oil is the second largest multinational company operating in India. With the Flipkart deal, Walmart will overtake this company and become second only to Maruti Suzuki, which is currently India’s largest MNC.
India is notoriously difficult to do business in, and in spite of recent reforms, the local regulations and red tape continue to make it difficult for foreigners to do business here. However it is expected that there will be fewer policy hurdles for Walmart to overcome in view of the Cabinet recently having approved 100% foreign direct investment (FDI) in the e commerce sector. In any case, since Flipkart is controlled by a Singapore registered entity, many of the possible problems are obviated.
Experts feel that Walmart’s global presence being what it is; Flipkart investors only stand to benefit from the takeover. Flipkart is in a stronger position and so are investors as a result. The scope of e commerce in India is only likely to grow; as such business will continue to boom! Flipkart vendors however (Flipkart itself does not maintain an inventory but provides a platform for buying and selling) are understandably nervous since Walmart’s ultra low price model could present a real threat. As for online shoppers, the choice will be wider and the prices even more competitive. The consumer, as they say, is king.
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