Walmart agree a $16m deal to buy Indian online retailer Flipkart

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Ending weeks of back and forth, Walmart confirmed it is making a $16 billion investment in Indian ecommerce marketplace Flipkart, giving it a 77% stake, increasing its presence in the rapidly growing market and edging out a bid from rival Amazon. Both companies were also in discussions with potential new investors and these, if successfully recruited, could lower Walmart's shares in the company, though it would retain clear majority ownership. (Amazon CEO Jeff Bezos owns The Washington Post.) And the move comes less than two years after Walmart stepped up its online game in the United States by buying Jet.com for $3.3 billion (roughly Rs. 22,000 crores). "Flipkart has established itself as a prominent player with a strong, entrepreneurial leadership team that is a good cultural fit with Walmart", said Judith McKenna, president and chief executive officer of Walmart International. Including fashion portals Myntra and Jabong, it controls 34 percent of India's online sales, based on Euromonitor data, followed by Amazon, with 27%. Walmarts Krish Iyer will be the CEO of the Bengaluru-based firm.

However, Walmart is said to have made the investment despite the near-term revenue challenges as the "long-term opportunity in a country with a population of 1.3 billion was too large to ignore".

Last year, Flipkart group raised $1.4 billion from global technology majors eBay, Tencent and Microsoft. Wal-Mart's offer includes $2 billion in equity financing that will go toward fueling the continued growth of the e-commerce company.

But in the holiday quarter, USA online sales growth slowed considerably and the company said it would shift some resources away from jet.com to walmart.com, a disappointing turn of events that could help explain investors' anxiety about the Flipkart news.

The deal would also give Flipkart access to Walmart's expertise in running offline stores, as well as its sellers and manufacturers, Meena said.

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The deal is subject to clearance from the Competition Commission of India and other regulators. The deal is the biggest M&A (merger and acquisition) in India so far and marks the entry of Walmart into the Indian retail business. This is partly because although the Internet and Mobile Association of India estimates that there are approximately 481 million internet users in India, the number of individuals with enough disposable income to shop online is still relatively small.

Amazon has expanded aggressively since it entered the Indian market in 2013. The past few years have seen Amazon spend billions of dollars on building out its operations in the nation, which ranks as the world's fastest-growing major economy.

Binny Bansal said Walmart is the ideal partner for the next phase of Flipkart journey. "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".

To get an early advantage in the nascent grocery industry in India, Future Group is all set to launch e-commerce app for grocery delivery offering the daily and weekly requirements to consumers.

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