Walmart acquires Flipkart


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.


American supermarket giant, Walmart has wrapped up Flipkart acquisition for $16 billion, a valuation of over $20 billion, which makes it the world's biggest ecommerce deal. Walmart will own around 77 per cent of the Bengaluru-based company in what is also being seen as the largest buyout for the US firm.
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.


About Flipkart Pvt Ltd 
Flipkart Pvt Ltd., a 12 billion dollar company,  is an Indian electronic commerce company headquartered in Bengaluru, India. Founded by Sachin Bansal and Binny Bansal (no relation) in 2007, the company initially focused on book sales, before expanding into other product categories such as consumer electronics and fashion.
Flipkart has received significant amounts of funding from various partners. It competes primarily with Amazon and the local rival Snapdeal.


About Walmart
Walmart Inc.  is an American multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores. Headquartered in Bentonville, Arkansas, the company was founded by Sam Walton in 1962 and incorporated on October 31, 1969. It also owns and operates Sam's Club retail warehouses. As of January 31, 2018, Walmart has 11,718 stores and clubs in 28 countries, operating under 59 different names.
Walmart is the world's largest company by revenue – approximately US$480 billion according to Fortune Global 500 list in 2016 – as well as the largest private employer in the world with 2.3 million employees. Walmart was the largest U.S. grocery retailer in 2016.


What is an 'Acquisition'?
An acquisition is a corporate action in which a company buys most, if not all, of another firm's ownership stakes to assume control of it. An acquisition occurs when a buying company obtains more than 50% ownership in a target company.

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.
With this deal, Walmart hopes to finally prop up a formidable opponent against the Jeff Bezos-run juggernaut.
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, would help it learn about the ecosystem
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.
Walmart will be inheriting a wholesome ever-expanding ecosystem of e-commerce and services, which will rival that of Amazon.


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. 


Are there any pitfalls? 
 How Walmart will factor in Flipkart's operational losses.

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.

Who will head Flipkart after the Walmart deal?
 Walmart's Krish Iyer will be the CEO of the company, according to agency reports. The company will continue to be based out of Bengaluru.

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.

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.


What about Amazon, it the global e-commerce giant concerned? 
With Walmart taking a majority stake in Flipkart, Amazon, will just fall back on its original plan of outspending and outmanoeuvring its rivals.

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.
The deal is going to shake things up. The world's biggest retail deal will impact the whole segment, the competitors and the consumers. Here's how it pans out. 


Why Online sellers are nervous ?
Online sellers on Flipkart are jittery because Walmart can wipe them off. Walmart, a $500 billion American behemoth, has a reputation of killing small businesses with ultra-low prices. They fear that Walmart might bring in its own private labels via Flipkart to the Indian consumers, adding to competitive pressures. "These products would be brought in at hyper-competitive prices, which will cannibalise the market and make it difficult for other sellers to operate.

Walmart  v Amazon
Walmart has been engaged in a bruising battle with Amazon — in the US and elsewhere. While its home turf is under threat from Amazon, which is pushing more and more people to shop online and even buying old-school players like Whole Foods, Walmart has been desperate to globalise its business and build its own technological arsenal. It has acquired Jet.com, Shoebuy and Bonobos to beef up its tech muscle. The results have been mixed. In China and Japan, it struggled to make a mark. Now, Flipkart’s last steps as an independent company may also be Walmart’s first steps to redeem its India business. 
Amazon closely trails Flipkart, which along with its fashion units controls nearly 40 per cent of India's online retail market, according to estimates by researcher Forrester. Walmart's push into e-commerce comes as Amazon has embraced offline retail, with an affiliate of the Seattle-based company picking up a $27.6 million stake in Indian retailer Shopper's Stop Ltd. 
War between an empowered Flipkart and Amazon will shrink the space for smaller players because it will ensure that prices, quality and delivery remain highly competitive. 


Probable Gains -
(i) Economic boost
 

The battle between Amazon and Flipkart for leadership in the Indian market will grow more intense with Walmart buying into Flipkart. Amazon has committed investments to the tune of $5 billion for its operations in India.
The war between Flipkart and Amazon will not only create a vast infrastructure of supply chain but also a large number of jobs. 
India’s total consumption is expected to rise to $3.6 trillion in 2027 from $1.3 trillion in 2016, according to industry data. The retail market is expected to hit $1.8 trillion from $650 billion in 2016. Of this, the biggest driver is expected to be food and grocery, pegged at $1.1 trillion in 2027 from $420 billion in 2016, which will drive a separate and similarly substantial investment by Walmart in agriculture. 
Agriculture and infrastructure sectors will get a big boost due to competition between Flipkart and Amazon. Farmers will benefit from increasing demand. It can also boost overall consumer demand. 
Analysis shows that it can generate millions of direct and indirect employment – it will create 10 Million Jobs Over 10 Years, Says Walmart CEO

(ii) Low prices, more variety 
The American giant Walmart, with huge experience in a first-world economy, will revolutionise Indian retail with low prices and a vast variety of consumer goods. Amazon's fight-back will ensure that prices remain competitive. 
(iii) Employees 
Walmart’s acquisition has generated one of the largest pools of wealth for employees in India’s corporate history. The deal has lifted the total worth of Flipkart’s employee stock ownership plans, including unvested shares, to $2 billion (about Rs 13,455 crore), according to an ET report. Esops held by about 100 current and former employees of Flipkart are now estimated to be worth more than $1 million. Walmart would offer a 100 per cent buyback of vested shares by Flipkart employees. 

Friday, 11th May 2018, 12:25:30 PM

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