Reports indicate that the board of Indian online retailer Flipkart has given its approval for selling a 75% stake to a group led by American giant retailer Walmart at a price of $15 billion. Under the deal Japan’s SoftBank Group will sell its interest in Flipkart which is estimated to be more than 20% via an investment fund. This will mean that Walmart has beaten Amazon to the finish line following the latter’s attempts to acquire a controlling interest in Flipkart.
According to sources Walmart’s offer won the approval of Flipkart’s board due to the fact that it was seen as having higher chances of winning the approval of regulators. This is because Amazon is already the second-largest online retailer in India after Flipkart and is thus a primary competitor. Barring an unforeseen event facing Walmart Amazon is now no longer in the running for the acquisition of Flipkart.
If the deal proceeds Walmart will now have a headstart in a lucrative market with a population of approximately 1.3 billion people. Walmart will also have a chance of rebuilding its online reputation. This is because the largest brick and mortar retailer in the world has faced struggles against Amazon as online spending increases among consumers. After the United States and China, the next large potential prize is India. In China foreign retailers have not done very well due to the dominance of Alibaba.
“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,” Arvind Singhal, the chairman of Technopak Advisors, a retail consultancy based in New Delhi, told Bloomberg.
In India Amazon has also been on an aggressive expansion spree individually. The chief executive officer of Amazon, Jeff Bezos, has made a commitment of $5.5 billion to India. Additionally the Amazon site has been adapted to suit local conditions. Despite being second to Flipkart in the market Amazon has recently been gaining ground.
Amazon also made attempts to have the Walmart-Flipkart transaction derailed since its success will fortify Flipkart. This is because Walmart will provide Flipkart with the necessary financial muscle as well as retailing expertise in various areas including marketing and logistics. Efforts by Walmart to win over Flipkart initially became public last year.
This comes in the wake of Walmart tuning its global strategy by giving priority to markets that are growing faster rather than the mature ones. Last month for instance Walmart ceded control of Asda, a U.K. grocery chain.