Walmart-Flipkart $16 bn deal: All your important questions answered here

US retailer Walmart Inc said on Wednesday it will pay $16 billion for roughly 77 per cent stake in e-commerce firm Flipkart, as it competes with Amazon Inc in India, which is an important growth market. 

With the deal done, Flipkart co-founder Sachin Bansal will be exiting the Bengaluru-based company. According to his Facebook post addressing Flipkart employees, Bansal plans to catch up on gaming and brush up his coding skills. 

Before the deal went through, Amazon had expressed its interest in making a competing offer. Citing Euromonitor, Reuters reports that Amazon holds about 27 per cent of India's burgeoning e-commerce market. According to the same source, Walmart only operates 21 cash-and-carry wholesale stores, which sell to businesses, in the country. 

Years before Amazon debuted in India, Walmart entered the country's market in 2007 through a joint venture with a local company, said the report. However, that joint venture was called off in 2013. Its presence in India, the report added, has remained largely static. This is partly due to restrictions in the country regarding foreign investment in physical retail. 

For Walmart, which according to the report has renewed its focus in key international markets in a bid to catch up with rivals, the Flipkart deal comes after the company retreated from Britain after selling a controlling stake in its British arm ASDA to J Sainsbury Plc. 

Here are some key things to know about the deal: 

1) How big is the deal in dollar terms? Walmart will pay $16 billion for a roughly 77 per cent stake in Flipkart. According to Reuters, Walmart has said that it plans to fund the Flipkart deal through a combination of newly-issued debt and cash on hand. The investment will also include $2 billion of new equity funding. 

This is the US retailer's biggest deal ever.  

2) Why is Walmart buying a majority stake in Flipkart? Fron Walmart Inc, $16 billion is a small price to pay as it aims to compete with global e-commerce giant Amazon, Karan Choudhury writes for Business Standard.

With this deal, Walmart hopes to finally prop up a formidable opponent against the Jeff Bezos-run juggernaut. 

According to the report, Walmart hopes that Flipkart will help it understand the e-commerce business better and take on Amazon, not only in India but globally as well. 

In an investor call, Doug McMillon, president and chief executive officer of Walmart, made it clear that Flipkart, which has done well over the last few quarters, would help it learn about the ecosystem. "We want to get the learnings from Flipkart and take it to other parts of the world," he said.

Walmart has listed benefits such as Flipkart’s push towards artificial intelligence (AI), vast user data and customer profiles, and even its payments platform PhonePe as the main reason for this acquisition. According to the report, industry insiders believe that Walmart will be inheriting a wholesome ever-expanding ecosystem of e-commerce and services, which will rival that of Amazon. 

3) What does Flipkart get out of the Walmart deal? Flipkart co-founder Binny Bansal said Walmart is the ideal partner for the next phase of Flipkart's journey as he saw e-commerce having great potential to grow from its current status of being a relatively small part of retail in India. 

Walmart will also expand Flipkart's online marketplace capabilities by bringing in a host of new products and private labels

4) Are there any pitfalls? Analysts, Choudhury writes, were not too excited about the Walmart-Flipkart merger. According to the report, they want to understand how Walmart will factor in Flipkart's operational losses

While saying that they did not want to get into 'historical financials', Walmart's senior management has indicated that some tough decisions had to be taken, but in the long run, these risks would pay off. 

It's not just about Flipkart's performance. Regarding the deal, Steven Roorda, portfolio manager with Minnesota-based Stonebridge Capital Advisors, told Reuters: "Walmart has a very poor track record operating outside North America."

"We will not know for five to 10 years whether this transaction is successful strategically or financially," he added. 

5) What happens to the Flipkart brand now? Walmart and Flipkart will remain separate brands, according to agency reports. Further, the Indian e-commerce company will have an independent board. However, the board will be revamped to give representation to the US firm. 

6) Who will head Flipkart after the Walmart deal? Kalyan Krishnamurthy will continue as the chief executive officer of Flipkart, and Binny Bansal as group CEO, according to the company, which will continue to be based out of Bengaluru

7) What about Flipkart's founders, are they staying onboard? Binny Bansal, who co-founded Flipkart with Sachin Bansal 11 years ago, will retain his 5.5 per cent stake in the company and will be chairman of the company's board, according to news agencies. 

Sachin is exiting the Bengaluru-based company post the Walmart deal. According to his Facebook post, he plans to catch up on gaming and brush up his coding skills as he takes time off to finish few pending personal projects. 

"I'll be taking some long time off and focus on finishing a few personal projects which I haven't been able to find time for. Will catch up on gaming (and see what kids are playing these days) and brush up on my coding skills," Bansal said in a Facebook post.

The emotional farewell post went on to say: "Sadly my work here is done and after 10 years, it's time to hand over the baton and move on from Flipkart". 

8) Is anyone opposing the deal? Retailers on Wednesday called the Walmart-Flipkart deal a 'backdoor entry' by the US retailer into India's retail trade. They also demanded that the Centre bring a policy to regulate online trade

Farmers' organisations said Walmart expanding its footprint in the sector might benefit some but would harm small and marginal farmers. 

The Confederation of All India Traders (CAIT), a traders' lobby group, as well as outfits affiliated to the Rashtriya Swayamsevak Sangh (RSS), sought Prime Minister Narendra Modi's intervention. They warned that they might hit the streets if their concerns were not addressed. 

The Bharatiya Kisan Sangh, a farmers' organisation affiliated to the RSS, and Sangh-affiliated economic think tank Swadeshi Jagran Manch said Walmart's entry isn't bad news just for retailers but also for farmers. 

9) What about Amazon, it the global e-commerce giant concerned? It is unlikely that Amazon is going to hold back from investing more and growing its business in India, Alnoor Peermohamed writes for the Business Standard. Amazon CEO Jeff Bezos has already committed to investing $5.5 billion to win in the country. Amit Agarwal, head of Amazon India, has said this figure is just a placeholder until the company sees the need to invest more

In 2017-18 alone, Amazon invested Rs 81.5 billion (approximately $1.3 billion) in its Indian e-commerce unit and the company has displayed its continuing aggression by pumping in Rs 26 billion (approximately $390 million) in late April. 

With Walmart taking a majority stake in Flipkart, Amazon, Peermohamed writes, will just fall back on its original plan of outspending and outmanoeuvring its rivals. 

10) What else is Walmart doing in India? A day after announcing the $16-billion investment in Flipkart, Walmart Inc on Thursday said it will continue to grow its wholesale cash-and-carry business, adding 50 new stores in the next four-five years. "We currently have 21 stores and plan to open 50 stores in 4 to 5 years. Plans are on track," Walmart India President and CEO Krish Iyer said at a select media roundtable called to explain the Flipkart deal.

This copy has been updated to correct an error with regard to the CEO's role after the deal


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