Walmart offers to sweeten valuation for large stake in Flipkart

Walmart Stores Inc, the world's biggest brick-and-mortar retailer that operates a chain of hypermarkets, discount department stores, is offering to double the valuation of Flipkart to about $20 billion for a large stake in the Indian ecommerce major.

The ongoing talks between Walmart and the Indian etailer entail multiple options, including one to buy out Flipkart's numerous early shareholders, paving the way for a gaining a substantial interest, according to a Times of India report citing people in the know.

It was reported at the beginning of this month that Walmart was in advanced talks to acquire a significant minority stake in Flipkart, and a deal could be finalised by March.

Walmart chief executive officer Doug McMillon led a delegation on a visit to Flipkart's Bengaluru office in late January in this connection. The other members of the team included Walmart ecommerce chief executive Marc Lore and Judith McKenna, founder of Jet.com which was acquired by Walmart in 2016, who took over as president and CEO of Walmart International on 1 February.

Both Walmart and Flipkart had refused to comment at the time on what they called market rumours and speculation. They have refused to comment on the latest reports as well.

Earlier too, back in September 2016, Reuters had reported that Walmart was keen on a stake in Flipkart.

At present, SoftBank is the largest shareholder in Flipkart with a 23.6 per cent stake followed by Tiger Global with 20.5 per cent and Naspers with 13 per cent. Founders Binny Bansal and Sachin Bansal (who are not related) hold around 10 per cent.

After SoftBank's infusion of $100 billion last year, Flipkart had reported that the deal takes its cash reserves to over $4 billion. The Softbank investment added to the $1.4 billion that Flipkart raised in March last year from EBay, Microsoft and Tencent.

Walmart could spend anywhere between $5-10 billion if the offer to buy a large stake finds favour with Flipkart, making it one of the largest cross-border deals in India, according to TOI's sources.

Walmart is firming up its interest in Flipkart almost eighteen months after the talks first began between the two companies. "Post the diligence, Walmart's offer involves one-fifth in primary capital with the rest of the transaction being secondary sale of shares to Walmart by existing investors. Walmart wants to start ahead of Amazon and India will be the only market where it can possibly do that by investing in Flipkart, which is being valued at $18-20 billion," one of the paper's sources said.

SoftBank, which through its Vision Fund ploughed $2.5 billion into Flipkart last year, is not expected to pare down its shareholding. The financing round, which was a combination of primary and secondary share purchases, had pegged Flipkart's blended valuation last year at around $10 billion.

While Flipkart's long list of early financial investors like Tiger Global may explore the Walmart offer to cash out, the response from some of the other significant shareholders in Flipkart, such as South African media and internet group Naspers and China's Tencent, to the Walmart proposal will be closely watched.

Discussions between Flipkart, which is fighting a bruising, cash-guzzling battle with Jeff Bezos's Amazon in India, and Walmart have passed the preliminary stages, though the final contours and timelines of the deal-making was still being decided, another ToI source said.

Walmart has been building alliances to counter Amazon, the Seattle-based online behemoth. Last month the retailer forged a partnership with Japan's Rakuten, as they announced a joint venture to sell online groceries in Japan and e-books and audio books in the US.

Walmart's recent investments in e-commerce have helped it shore its online revenues and grow it by 50 per cent in the US. A lot of the focus on online retail has come after Walmart acquired Jet.com for $3 billion and its founder Marc Lore came on board in late 2016. Lore is the president of Walmart.com.

It is starting to become clear that investors alone cannot help Flipkart fight deep-pocketed Amazon, which has billions of dollars to deploy in India. The stake sale to Walmart is a natural progression for India's largest consumer internet firm, industry commentators said.

Walmart, barred from multi-brand retail, operates 21 Best Price Modern Wholesale stores in India, but has never made a profit in the country. It will look to gain from the existing base of Flipkart customers, while the domestic online retailer will leverage from Walmart's extensive expertise in pricing and selection as it enters new categories like grocery and daily consumables.

Most third-party agencies peg the Flipkart group, along with its fashion portals Myntra and Jabong, ahead of Amazon in terms of sales. Revenues for Flipkart group increased 29 per cent to Rs 19,854 crore in the financial year ending March 2017, according to the regulatory filings made by the online retailer's parent company in Singapore as growth across the industry slowed (See: Flipkart's losses widen to Rs8,771 cr despite 29% rise in revenue).

Online retail, which grew at 133 per cent during 2014, has hit the slow lane over the past two years and is expected to have grown at 26 per cent in 2017, according to Forrester Research.