Walmart has agreed to buy around 77 percent stake in Indian e-commerce firm Flipkart for US$16 billion, marking the USA retailer's largest-ever deal and setting the stage for a fierce battle with Amazon in a key growth market.
Walmart's acquisition of Flipkart at a valuation of almost $21 billion has generated one of the largest pools of wealth for employees in India's corporate history.
Walmart expects the deal to reduce fiscal 2019 earnings by 25-30 cents per share if it closes in the second quarter.
As industry applauded, sections of traders and the RSS affiliate, Swadeshi Jagran Manch, alleged that Walmart was "circumventing" rules for a "back-door entry".
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Walmart bought online outdoor retailer Moosejaw in February 2017 for about $51 millihere in cash giving the US retailer a slew of popular brands including Patagonia and North Face. The deal brings United State's largest operator of physical retail stores into direct contact with Indian consumers as well as opens a new front of competition with e-tailer Amazon. It needs to act early and it needs to be aggressive - and buying Flipkart is just such a move.
In a statement released later that day confirming the deal, Walmart said its acquisition bid was subject to approval from Indian authorities. Now, the retailer can help launch Flipkart's grocery services to compete with Amazon's.
Walmart's logistics expertise will greatly help Flipkart reach customers in more remote corners of India, according to experts.
Walmart's global reach sprawls across 6,360 stores in about two dozen countries from Argentina to Zambia. S&P Global Ratings changed its outlook on Walmart to negative.
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The growth of Flipkart, which sells some 80 million different products in more than 80 categories, followed the burgeoning growth of India's economy over the past decade. It has over 100,000 registered sellers and 21 warehouse facilities across the country. "Our investment will benefit India by providing quality, affordable goods for customers, while creating new skilled jobs and fresh opportunities for small suppliers, farmers, and women entrepreneurs". It will see the exit of Flipkart's co-founder and chairman Sachin Bansal.
It also enables Walmart to tap into India's retail market without building stores.
Flipkart saw losses rise 68% to $1.31 billion in the financial year that ended 31 March 2017. Insiders say, Alphabet, the parent company of Google, has shown interest to invest in the online retail firm and is in discussion with them. "The sale of ASDA in the United Kingdom also meant that Walmart needed to identify a new growth avenue - and long frustrated by the byzantine laws governing foreign investment in Indian retail, growing via bricks and mortar retail would have been too complex and slow".
Boss Jeff Bezos has committed more than $5 billion to grabbing a big slice of India's e-commerce pie after failing to make inroads in China.
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