Walmart’s investment negotiations with Flipkart include a proposal to open a chain of retail stores in India, according to Walmart’s Flipkart investment an investment banker familiar with the developments, which could finally allow the companies to realise their long-harboured ambitions.
The US-based retail giant is negotiating to buy more than a 30% stake in India’s largest online marketplace as it seeks to open another global front in its battle against Amazon.
Walmart, however, is likely to get only a 20% stake because of objections from Flipkart’s newest investor SoftBank, which holds a 20.8% stake in the Indian company, according to other people privy to the negotiations.
“Flipkart has been trying to foray into offline stores for a long time and has been looking for the right partner,” the investment banker said, requesting anonymity and declining to disclose more details.
Walmart cannot directly open retail stores in India because of restrictions on overseas investments in multi-brand retail. It runs wholesale operations instead.
As for Flipkart, which needs more than just capital muscle to take on the heavily funded Amazon in India, ET reported this week that the online marketplace was in the fray to buy retail chain Vishal Mega Mart from TPG and Shriram Group.
Spokespersons for Flipkart, Walmart, and SoftBank all declined to comment. on Walmart’s Flipkart investmentRetail industry experts said a partnership between Flipkart and Walmart would boost the online retail business of the former, and grocery and consumer goods business for the latter.
Walmart already has a presence in India via its business-to-business arm with 21 Best Price Modern Wholesale stores.
If Walmart’s negotiations with Flipkart materialise, purchases of grocery and consumer goods on Flipkart could be handled also via Walmart’s wholesale stores, improving product availability and delivery speed for the online retailer.
And a retail store partnership would allow Flipkart’s customers to order online and pick up their purchases from the stores, said the industry experts. “Walmart may have to establish a marketplace seller (akin to WS Retail) that can sell consumer goods via Flipkart,” one of them said.
Walmart had previously partnered with Bharti Enterprises to manoeuvre around India’s foreign direct investment rules but ended the partnership in 2013. The retailer steered clear of any Indian partnerships until 2016, when it began investment discussions with Flipkart.
The talks didn’t materialise.Walmart’s current negotiations with Flipkart are expected to mirror the schematics of its investment in JD.com, under which the Tencent-backed Chinese company’s management then wasn’t disturbed.
The Walmart-Tencent alliance is now playing out in India as part of a global alliance to counter Amazon, which has committed to invest $5 billion in its core India marketplace. New York-based Tiger Global Management, an early investor in Flipkart, was the biggest early backer of JD.com as well.
WeChat owner Tencent led a $1.4-billion investment in Flipkart along with Microsoft and eBay in April.
SoftBank invested $2.5 billion in August and discussions with Walmart for a potential investment in Flipkart was a part of its 100-day plan during its initial strategy meeting, a source said.
“Walmart will get board seats on Flipkart for its global e-commerce CEO (Marc Lore) and international CEO (Judith McKenna) and not touch the existing management team,” said one of the persons cited above.
“Primaries (sale of new shares) are expected to value Flipkart at around $20 billion and secondaries (shares sales from existing investors) at a lower valuation,” said another person privy to the negotiations.