Why Walmart Is Investing $16 Billion in This Indian E-Commerce Giant

May 10, 2018, 11:14
Why Walmart Is Investing $16 Billion in This Indian E-Commerce Giant

Although the deal has compounded Bansal's wealth by another billion, he would have to pay 20 per cent as capital gains tax.

According to Walmart, the acquisition would enable Flipkart to tap its omnichannel retail experience, as well as grocery and merchandise supply-chain knowledge.

Opposing the Walmart-Flipkart deal, RSS affiliate Swadeshi Jagran Manch said in a letter to Prime Minister Narendra Modi that Walmart was using the e-commerce route to circumvent the rules to attack the Indian market.

Walmart is likely to announce its much-anticipated deal to buy a controlling stake in Indian e-commerce player Flipkart before the end of this week, two sources said, in what is likely to be the USA retail giant's biggest acquisition of a business.

In terms of marketing after the deal, Ethan Chernofsky of market intelligence company SimilarWeb believes that the brand value is the key part of the deal and Walmart's entry into the market could give Flipkart a boost in their non-branded search strategy.

RSS affiliate Swadeshi Jagran Manch even asked whether the deal amounts to circumvention of rules, with a "back-door entry" of Walmart into Indian retail market, which is hard for the multi-national behemoths to tap into. In fact, Walmart said it expects e-commerce to grow at four times the rate of overall retail in the Indian market.

eBay has said it intends to sell its holdings in Flipkart and end a strategic relationship.

Walmart shares ended the US Wednesday trading session 3.13% lower at $83.06. Although Flipkart is now the market leader, Amazon's Indian site, which only launched in 2013, is catching up quickly.

The acquisition of Flipkart is the latest in a series of deals by Walmart in recent years to help the company compete for customers with e-commerce industry leader Amazon.

Flipkart's co-founder was equally upbeat on the deal. Already, US e-commerce giant Amazon has been aggressively expanding its presence in India.

Terming the buyout a Rs 1 lakh crore all cash deal, Paytm Founder Vijay Shekar Sharma tweeted that it was a ideal answer to those who were dismissive of Indian start-ups in an open-for-all market.

The company has been raising billions in funding and investing in expansion and growth of the business.

"Though the focus will be on serving customers and growing the business, we will support Flipkart's ambition to transition into a publicly-listed, majority-owned subsidiary in the future", Walmart said. It is expected to close later this year. The Japanese technology group invested $2.5 billion in Bangalore-based Flipkart past year.

Sachin was the CEO of Flipkart for nine years.

Indian tax authorities are said to be closely watching the Walmart-Flipkart deal and may look to slap a 20 per cent withholding tax on what appears to be an offshore transaction, rekindling memories of the controversial Vodafone-Hutchison deal in 2007.

Walmart India now operates 21 Best Price cash-and-carry stores and one fulfillment center in 19 cities across nine states in India, with more than 95% of sourcing coming from India.

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