Walmart may rope in Google parent Alphabet for the Flipkart deal

Walmart’s acquisition plan for Flipkart will likely involve Google’s parent Alphabet taking a minority stake in India’s largest e-commerce company, said people with knowledge of the matter. Alphabet will probably invest $1-2 billion after the Walmart acquisition, expected to be announced shortly, they added.
Walmart and Alphabet are seen joining forces once again as they seek to take on Amazon’s growing retail clout, this time in a market outside the US.
 
As part of a partnership forged in the US last year, Walmart products are sold on Google Express, the tech giant’s online mall. Google also offers personalised voice shopping for Walmart products online.
 
Consumers can also place orders for Walmart products by speaking them out to Google Home devices.
 
Google has been exploring India’s retail market with pop-up outlets in various malls to showcase Pixel smartphones. ET reported earlier this month that Google had drawn up an India-focused strategy to roll out products including smart speakers, premium laptop Pixelbook, intelligent home automation products and is even planning a midrange smartphone especially for markets such as India. Walmart declined to comment. Google and Flipkart did not respond to queries.
 
The Bentonville-based retailer is learnt to have offered to buy up to 85-86% of Flipkart through a mix of primary and secondary investment. Apart from possibly investing $2-2.5 billion directly in Flipkart, Walmart is looking to buy the shareholding of individual investors.
 
China’s Tencent and US-based Tiger Global Management, which together own 26.5% stake, will exit partly in the initial round, said people with knowledge of the matter. SoftBank, which owns a 20.8% stake, could exit completely in the first phase, they said.
Walmart is also negotiating with Flipkart co-founders Sachin Bansal and Binny Bansal (unrelated) to buy their stakes, but a final decision has not been taken.
 
The other significant shareholders in the company include early investor Accel Partners, South African media conglomerate Naspers and US-based online marketplace eBay.
 
The US retailer will have the option to buy out those that remain invested and wish to sell at a later date. This could, in effect, give it full ownership over a period of time in Flipkart, excluding Alphabet’s stake, said the people cited above.
 
The deal will be similar to Vodafone’s acquisition of phone company Hutchison Essar in 2007, when Indian investor Essar had the option to sell its stake to the UK-based company at the same valuation at which Hutchison exited the company.
 
Walmart may also explore the option of listing the Indian unit as it did in Mexico. This will also help in price discovery in case some investors chose to exit through that route.
 
Flipkart chief executive officer Kalyan Krishnamurthy, who was brought in by Tiger Global Management in 2016, is likely to remain in his job for now. Walmart has been in negotiations to buy Flipkart for more than a year as it looks to take the battle to arch rival Amazon, which has created one of India’s largest ecommerce businesses and invested billions of dollars into its online shopping ecosystem in the country.
 
The deal, if successful, will be the biggest e-commerce acquisition for the Bentonville-based giant. Prior to that, Walmart had acquired Jet.com for $3.3 billion in 2016.
 
Stronger presence
 
The company wants to gain a stronger presence in India that will be underscored by a commitment to the country’s farm sector that it sees as mutually reinforcing, particularly with regard to the food and grocery segment.
 
India’s total consumption is expected to rise to $3.6 trillion in 2027 from $1.3 trillion in 2016, according to industry data. The retail market is expected to hit $1.8 trillion from $650 billion in 2016. Of this, the biggest driver is expected to be food and grocery, pegged at $1.1 trillion in 2027 from $420 billion in 2016, which will drive a separate and similarly substantial investment by Walmart in agriculture, the sources said.
 
This will help build backend supply chain infrastructure that benefits farmers, said K Srinivas Reddy of Juniper Investments, a research and advisory firm.
 
“Job creation would get a big boost directly and indirectly with such an investment in a fast-growing and large consuming economy like India,” he said. “Investments by Walmart will further fuel consumption due to convenience and changing buying preference of consumers as India becomes a $3 trillion economy.”
 
Walmart has had a rollercoaster ride in India since its arrival in 2007 in a cash-and-carry joint venture with Bharti Enterprises.
 
A global internal anti-corruption probe in India drove a wedge between Walmart and Bharti that ultimately led to their split in October 2013. Since then Walmart has been going slow in expanding the cashand-carry business it inherited after buying Bharti’s 50% stake in the joint venture.
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