In one of the largest merger and acquisition deals struck in India, Walmart Inc has signed definitive agreements to pick up an initial stake of 77 per cent in Flipkart, valuing the e-commerce giant at just over $20.8 billion.
The deal is subject to regulatory approval in India, Walmart said.
Walmart's investment includes Dollars 2 billion of new equity funding that would help Flipkart accelerate its growth pace amid stiff competition from Amazon, which is also pumping in huge funds into its India operations. Flipkart and Amazon have always been struggling for domination of one of the fastest-growing online retail markets in the world. Other than Walmart, Flipkart's shareholders will now comprise of co-founder Binny Bansal, Tencent Holdings, Tiger Global Management, and Microsoft.
The deal also shows how Walmart chief executive Doug McMillon is reshaping the company's global operations, prioritising faster-growing markets like China and India over more mature ones.
He added that the investment would benefit India by "providing quality, affordable goods for customers, while creating new skilled jobs and fresh opportunities for small suppliers, farmers and women entrepreneurs".
A man pushes shopping trolleys at a Walmart India's Best Price Modern Wholesale store in Jammu on May 8.
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Until up to a few days ago, it seemed that both, Amazon and Walmart, were equally in the race to acquire the prized jewel of the Indian e-commerce. SoftBank's Vision Fund, the world's biggest private equity fund, had invested $2.5bn in Flipkart last August. The cash component is reported, going to close to 55% with the exit of some of the large investors together with SoftBank.
"The deal reaffirms that there is big opportunity in Indian retail", said Arvind Singhal, Managing Director of retail consultancy Technopak, adding it would attract more global investment into Indian retail.
The US giant's Indian stake outstrips the $10.8bn (then £6.7bn) price it paid for Asda in 1999, and comes weeks after it announced plans to pull out of the United Kingdom and sell the supermarket chain to Sainsbury's.
Walmart is also going to be investing in creating a back-end infrastructure in order to boost the country's farm sector also. Let alone offline retailers, Walmart's foray could even impact online sellers on Flipkart as well.
The deal will also give an upper hand to Walmart, which has been involved in a long fighting journey with Amazon in the US. Before the deal they each owned about 5%, according to a Bloomberg analysis of the company's annual return filed in Singapore.
According to Meena, the Indian online retail segment was worth US$20 billion previous year, accounting for just 2.4 percent of the country's total retail industry.