Walmart seals $16B Flipkart deal

Walmart Inc. has finalized a deal giving it a majority stake in Flipkart Group, India's largest e-commerce company. The $16 billion investment gives the Bentonville-based retailer access to one of the world's fastest-growing e-commerce markets.

The deal closed Saturday, Walmart and Flipkart said in a joint news release. The acquisition is the largest in Walmart's history.

The companies reached an agreement in May for Walmart to acquire a 77 percent stake in the Indian firm, pending regulatory approval. India's antitrust agency approved the deal on Aug. 8.

Walmart's investment includes $2 billion in new equity funding to help speed Flipkart's growth.

Walmart has 21 wholesale stores in India, but can't sell directly to consumers there because of government restrictions on foreign businesses that sell more than one brand. Its stake in Flipkart gives the retailer direct access to an e-commerce market that investment firm Morgan Stanley projects will reach about $200 billion by 2027.

"Walmart and Flipkart will achieve more together than each of us could accomplish separately to contribute to the economic growth of India, creating a strong local business powered by Walmart," Judith McKenna, chief executive officer of Walmart International, said in the news release. "Our investment will benefit India by providing quality, affordable goods for customers, while creating new skilled jobs and opportunities for suppliers."

Flipkart co-founder and group Chief Executive Officer Binny Bansal said in the release that "by combining Walmart's omnichannel retail expertise, supply chain knowledge and financial strength with Flipkart's talent, technology and local insights, we are confident that together we can drive the next wave of retail in India."

With a population of more than 1.3 billion people, a growing middle class and strong economic growth, India is seen as fertile ground for global online retailers, including Amazon.com. According to data from Euromonitor Passport, Flipkart controlled 35.7 percent of India's online market share in 2017, with Amazon close behind at 27.7 percent. To date, Amazon has invested $5 billion in its India operations.

Indian business owners have protested the Walmart-Flipkart deal since it was first announced, saying it will create unfair competition and violates the nation's e-commerce rules. The Joint Action Committee Against Foreign Retail and E-Commerce, which claims to represent more than 100 associations of farmers, trade groups, street vendors and other workers, said it will hold a national convention on Sept. 1 to specifically address the Walmart deal. It also plans to organize nationwide protests against foreign retail and e-commerce companies.

However, Walmart said in its news release that its investments in India "will support national initiatives and will bring sustainable benefits in jobs creation, supporting small businesses, supporting farmers and supply chain development and reducing food waste."

Flipkart will continue to be led by its existing management team, according to the news release. The remaining stake in the company is held by other shareholders, including Bansal, Tencent Holdings Ltd., Tiger Global Management LLC and Microsoft Corp.

Flipkart's financials will be reported as part of Walmart's international division.

When the acquisition was announced in May, Walmart Chief Financial Officer Brett Biggs said the company estimated a negative impact of 25 cents to 30 cents on earnings per share, assuming the deal closed midyear. That estimate included interest expenses related to the debt Walmart took on to fund the deal. In reporting second-quarter earnings Thursday, Biggs said the company expects the same impact, prorated for when the transaction actually closed.

In the earnings report, Biggs said the retailer's expected fiscal 2019 earnings per share of $4.90 to $5.05 did not include the potential effect of the Flipkart acquisition.

Business on 08/21/2018

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