Walmart pays about $15 billion for majority stake in Flipkart

The board of Flipkart On Line Services has approved an agreement that will see it sell about three quarters of the company to Walmart Inc. for approximately $15 billion according to people familiar with what is happening.

Flipkart Online Services

Flipkart Online Services Private Limited owns and operate an e-commerce website. It sells books, movies, music, games, televisions, digital cameras, mobile phones, computers, network components, software, peripherals, as well as kitchen and other home appliances. The company has headquarters in Bangalore India.

The terms of the agreement

Under the terms of the proposed deal, SoftBank Group will sell all of the 20 plus percent stake it holds in Flipkart through an investment fund at a valuation of approximately $20 billion for the whole company people who know about the situation said but wished to remain anonymous since it was a private agreement.

Alphabet, the parent of Google is likely to take part in the investment along with Walmart one person said. A close is expected within the next ten days but terms could still change and the deal was not certain the group said.

The deal would be a triumph over rival Amazon

Amazon has been trying to take control of Flipkart with a competing offer. The Flipkart board decided that a deal with Walmart is more likely to get regulatory approval. Amazon is already the number two e-commerce operator in India after Flipkart. Amazon would not likely get approval for a takeover of Flipkart.

Deal would give Walmart a leading position in Indian e-commerce

If completed, the agreement will provide Bentonville, Arkansas-based Walmart with the leading position in the Indian market of 1.3 billion people. It would also give a chance to build its online reputation. Walmart has struggled in online competition against Amazon as more consumers spend on the Internet. India has large potential. In China foreign retailers are not making much progress against China's Alibaba Group.

Arvind Sighhai, chair of the New Delhi-based Technopak Advisors said: “Flipkart is key to a global e-commerce strategy. Walmart clearly doesn’t want to be left behind in the race as India is a critical piece.”

Amazon aggressively expanding in India

Amazon has invested $5.5 billion in India. The local head Amit Agarwai has made progress by adapting the Amazon site to local conditions. CEO Jeff Bezos would like to succeed in India after his investment did not turn out well in China. Amazon has been gaining on Flipkart and it has tried to derail the deal with Walmart. Walmart can no doubt help Flipkart compete with Amazon. Walmart has been working to win over Flipcart for at least a year now.

As part of the Walmart deal, existing shareholders such as Tencent Holdings, South Africa's Naspers Ltd. and Microsoft will still retain small stakes people say.

Softbank

The SoftBank group is a Japanese company with headquarters in Tokyo. It owns operations in broadband, fixed-line telecommunications, e-commerce, Internet, technology services , finance, media and marketing, semi-conductor design and many other businesses. It has many subsidiaries.

The SoftBank group was ranked 38th largest public company in the Forbes Global 2000 list. It is the fourth largest publicly-traded company in Japan.

SoftBank will turn a tidy profit on the stake it bought in Flipkart just last year. Through its Vision Fund, it invested $2.5 billion. However, at the Walmart deal's valuation it will now be worth more than $4 billion.

Amazon competing with China's Alibaba for global e-commerce dominance

Amazon and Alibaba together are the largest e-commerce companies on the globe. Together, their market cap is a whopping $1.1 trillion — and both are competing to expand their global reach.

Amazon is aggressively entering India, Singapore, and Australia while Aliibaba is expanding in Australia and also betting on successes in India and Southeast Asia.

Up until now the two competing giants have mostly avoided direct competition as they have been dominant in different areas of the world but this is likely to change as the two are both expanding their global reach.

Alibaba Holdings

Alibaba Group Holding Limited is a China-based multinational company providing e-commerce, Internet, AI and technology. In January this year, the company's market cap was $527 billion making it one of the top ten most valuable companies in the world.

Alibaba has operations in over 200 countries in 2016. Online sales surpassed those of Walmart, Amazon, and eBay combined since 2015. Revenues have been rising three percent each year.

Jack Ma co-founder of the Alibaba Group said: “We believe that globalization is the future.”

Amazon

In 2015 Amazon overtook Walmart to become the most valuable U.S. retailer by market cap. It is the 4th most valuable public company in the world, and also the largest Internet company by revenue in the world. It is also the 8th largest employer in the U.S. with about 566,000 employees as of 2017. In the same year, Amazon acquired Whole Foods Market for $13.4 billion increasing its market presence as a brick and mortar retailer.

The companies use different expansion strategies

Amazon expands by acquiring companies. On the other hand, Alibaba invests and acquires stakes in companies. Outside the U.S. and China, Alibaba has taken a minority stake in twice as many companies as Amazon. In contrast, Amazon has acquired five times more companies than Alibaba.

While both companies are trying to take their e-commerce and logistical expertise to a global level, Amazon is focusing on its Marketplace brand with a model of low prices, with a vast selection and quick delivery. Alibaba is expanding its logistic net around the world and wants to connect its global e-commerce markets.

Conclusions

Both companies are constantly expanding their presence around the globe as there are still many parts of the world where online retail markets remain undeveloped and untapped. Both companies have considerable growth potential in the short term.

By merger and acquisition, investment and partnerships the two companies will continue expanding in high growth markets such as India, Australia and Singapore. Competition between the two companies is likely to ramp up. Soon other areas such as Latin America and Africa could become areas where both companies want to expand their reach.

Previously published in DIgital Journal