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Walmart Taking $16B Majority Stake in India E-commerce Firm Flipkart Group

Walmart Inc. has signed definitive agreements to become the largest shareholder in Flipkart Group, considered a key player in India’s burgeoning e-commerce sector.

Walmart will pay about $16 billion for an initial stake of approximately 77 percent in Flipkart, formally known as Flipkart Private Ltd., subject to regulatory approval in India. The remainder of the business will be held by some of Flipkart’s existing shareholders, including Flipkart co-founder Binny Bansal, Tencent Holdings Ltd., Tiger Global Management and Microsoft Corp. Walmart said while the immediate focus will be on serving customers and growing the business, it also supports Flipkart’s ambition to transition into a publicly listed, majority-owned subsidiary in the future.

Walmart noted that the investment will help advance Flipkart’s goal to transform commerce in India through technology and underscores Walmart’s commitment to sustained job creation and investment in India, one of the largest and fastest-growing economies in the world.

“India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market,” Doug McMillon, Walmart’s president and CEO, said. “As a company, we are transforming globally to meet and exceed the needs of customers and we look forward to working with Flipkart to grow in this critical market.”

Noting that Tencent, Tiger Global and Microsoft will be key strategic and technology partners, McMillon said Walmart’s investment will provide “quality, affordable goods for customers in India, while creating new skilled jobs and fresh opportunities for small suppliers, farmers and women entrepreneurs.”

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Founded in 2007, Flipkart has grown rapidly, leveraging a powerful technology foundation, including artificial intelligence, and emerging as a key supplier of apparel, fashion, electronics, large appliances and mobile. In a market where Walmart expects e-commerce to grow at four times the rate of overall retail, Flipkart is well positioned to utilize its integrated ecosystem defined by localized service, deep insights into Indian customers and a best-in-class supply chain, Walmart said.

Binny Bansal, Flipkart’s co-founder and group CEO, said, “This investment is of immense importance for India and will help fuel our ambition to deepen our connection with buyers and sellers, and to create the next wave of retail in India. While e-commerce is still a relatively small part of retail in India, we see great potential to grow. Walmart is the ideal partner for the next phase of our journey and we look forward to working together in the years ahead to bring our strengths and learnings in retail and e-commerce to the fore.”

Flipkart’s supply chain arm, eKart, serves more than 800 cities, making 500,000 deliveries daily. In the fiscal year ended March 31, Flipkart recorded gross merchandise volume of $7.5 billion and net sales of $4.6 billion, representing more than 50 percent year-over-year growth in both cases. With the investment, Flipkart will leverage Walmart’s omnichannel retail expertise, grocery and general merchandise supply-chain knowledge and financial strength, while Flipkart’s experience, technology, customer insights and agile and innovative culture will benefit Walmart in India and across the globe, the companies said.

“We view Walmart’s announcement… favorably as it provides Walmart with immediate scale in the burgeoning Indian e-commerce arena,” Moody’s lead retail analyst Charlie O’Shea said. “As Flipkart is expected to generate meaningful losses for at least the next few years, this is clearly an investment for the future and when viewed in tandem with the recently announced sale of a majority stake in Asda, is indicative of Walmart’s long-standing strategy of shifting resources into higher growth potential markets and segments when opportune.”

Walmart had fiscal year 2018 revenue of $500.3 billion on operating income of $20.4 billion.

While Walmart and Flipkart will leverage the combined strengths of both companies, they will maintain distinct brands and operating structures. Currently, Walmart India operates 21 Best Price cash-and-carry stores and one fulfillment center in 19 cities across nine states in India, with more than 95 percent of sourcing coming from India. Krish Iyer, president and CEO of Walmart India, will continue to lead that part of the business.

“Flipkart has established itself as a prominent player with a strong, entrepreneurial leadership team that is a good cultural fit with Walmart,” Judith McKenna, president and CEO of Walmart International, said. “This investment aligns with our strategy and our goal is to contribute to India’s success story, as we grow our business. Over the last 10 years, Flipkart has become a market leader by focusing on customer service, technology, supply chain and a broad assortment of products. With Flipkart and the other shareholders who have come together, we will continue to advance the winning e-commerce ecosystem in India.”

Walmart’s investment includes $2 billion of new equity funding to accelerate growth. Walmart and Flipkart are also in discussions with additional potential investors who may join the round, which could result in Walmart’s investment stake moving lower after the transaction is complete, but it would retain clear majority ownership.

Tencent and Tiger Global will continue on the Flipkart board, joined by new members from Walmart. The final make-up of the board has yet to be determined, but it will also include independent members. Walmart said the board will work to maintain Flipkart’s core values and entrepreneurial spirit, while ensuring it has strategic and competitive advantages.

The deal is expected to close later this calendar year, subject to regulatory approval. To finance the investment, Walmart said it intends to use a combination of newly issued debt and cash on hand. Upon closing, Flipkart’s financials will be reported as part of Walmart’s International business segment.

As Walmart scales in India, the company plans to support small businesses and “Make in India” through direct procurement and increased opportunities for exports through global sourcing and e-commerce. Among other initiatives, Walmart will partner with small business owners to help modernize their retail practices and adopt digital payment technologies.

Walmart said it also plans to support farmers and develop supply chains through local sourcing and improved market access.