By Matthew Boyle and Saritha RaiWalmart Inc.s deal to buy a controlling stake in Indias biggest online seller is meeting skepticism on Wall Street.The worlds largest retailer will acquire a 77 percent holding in Flipkart Group for $16 billion, the companies said earlier Wednesday.
Flipkart co-founder Binny Bansal and other shareholders will hold the remainder.
The tie-up values the Indian e-commerce giant at about $20.8 billion and marks a blow against rival Amazon.com Inc.
as the battle for e-commerce supremacy goes global.The deal -- Walmarts biggest ever -- gives it greater access to Indias e-commerce market, which Morgan Stanley has estimated will grow to $200 billion in about a decade.
But it will take some time for the business to turn profitable, and analysts on a Wednesday morning call about the deal adopted a cautious tone.As Flipkart is expected to generate meaningful losses for at least the next few years, this is clearly an investment for the future, Moodys analyst Charlie OShea wrote in a note.Walmart shares dropped as much as 4.2 percent to $82.13 as of 9:31 a.m.
in New York -- the lowest intraday price since October.
The companys stock was already down 13 percent this year through Tuesdays close.The retail giant declined to give a specific timetable on profitability, saying only that Flipkarts losses should decline in the mid to long term.
The deal will shave 25 cents to 30 cents per share from this years earnings, with that impact doubling the following year.Its typical of a business like this that, as you scale up, you will have losses.
We expect those losses to continue for a little while, Walmarts Chief Financial Officer Brett Biggs said in a phone interview.With the Walmart tie-up, Flipkart gets additional capital and expertise to battle Amazon, which has spent billions of dollars to gain customers in India.
Online sales in the worlds second most-populous nation are growing about 35 percent a year, according to data tracker Euromonitor, fueled by a rising middle class and urbanization that present an attractive environment for e-commerce.Weve been looking at this business for some time.
India needs no introduction; its a fantastically growing market.
And it fits right in with our strategy, Judith McKenna, Walmarts international chief executive officer, said in a phone interview.Walmart was upstaged earlier Wednesday when Masayoshi Son, chief executive officer of SoftBank Group Corp., confirmed during a briefing in Tokyo that the U.S.
retailer had agreed to buy control of Flipkart.
SoftBank invested $2.5 billion in the Indian company and that stake will be worth about $4 billion in the deal, Son said.Indian PlanFor the U.S.
retailer, acquiring a stake in Flipkart enables it to tap into Indias retail market without building stores.
Walmart once envisioned operating hundreds of locations across India but it has been unable to open traditional units because of long-standing governmental rules for so-called multibrand international retailers.
Walmart entered India in 2009 through a joint venture with Bharti Enterprises, and took full control of that business in 2013.
It currently operates 20 wholesale clubs in India that serve small businesses.Walmarts investment includes $2 billion in new equity funding, which the companies say will be used to spur Flipkarts growth.
The companies said theyre also in talks with other potential investors, which could result in the U.S.
companys stake being lowered, though it will retain majority ownership.
Flipkart will maintain a separate brand and operating structure, the companies said.The deal is the largest-ever in e-commerce, according to data compiled by Bloomberg.The deal represents a missed opportunity for Amazon CEO Jeff Bezos, who has also failed to create a meaningful presence in China.
Amazon needs to succeed in another high-growth market to prove it can effectively replicate its model beyond North America, and it has been aggressively expanding in India.
Bezos has committed $5.5 billion to the country and his local chief, Amit Agarwal, has made progress by adapting the site to local conditions.Despite its size and global clout, Walmart has found it necessary to forge alliances in its battle against Amazon, which last year bought Whole Foods Market to gain a foothold in the U.S.
grocery industry.
In China, Walmart has acquired a 12 percent stake in e-commerce player JD.com, and in Japan it teamed up this year with Tokyos Rakuten Inc.
India is the next big potential prize after the U.S.
and China, where foreign retailers have made little progress against Alibaba Group Holding Ltd.Weve been talking about how we want to get this global portfolio where we want it, CFO Biggs said.
Nobody will be better positioned in Asia than we will be.Payments AppWalmart executives said they were particularly interested in PhonePe, Flipkarts mobile payments app, along with its fashion sites Myntra and Jabong.
Walmart has tried to make a bigger push into apparel online with acquisitions like Bonobos and ModCloth, along with a partnership with department-store chain Lord Taylor.Flipkarts sales grew more than 50 percent in its most recent fiscal year to $4.6 billion, Walmart said, compared with $11.5 billion for Walmarts U.S.
e-commerce business.The deal also shows how Walmart CEO Doug McMillon is reshaping the companys global operations, prioritizing faster-growing markets like China and India over more mature ones.
Last month, the company agreed to cede control of its U.K.
grocery chain, Asda, merging it with British rival J Sainsbury Plc.
Walmart will retain a 42 percent stake in that combined company.Flipkart competes with Amazon across a range of product categories.
Including fashion portals Myntra and Jabong, it controls 34 percent of Indias online sales, based on Euromonitor data, followed by Amazon, with 27 percent.The Indian company has attracted investment from a range of companies that also includes Microsoft Corp., Tencent Holdings Ltd.
and Tiger Global Management, which will retain stakes.