Walmart Buys 77% Stake In Flipkart

Mergers & Acquisition

Walmart Buys 77% Stake In Flipkart

Walmart is acquiring 77% stake in India's e-commerce giant Flipkart for US$ 16 billion. A deal that puts the valuation of Flipkart at over US$ 20 billion.

Walmart is buying a company which loses money. Media reports suggest, in 2016-2017, the losses of Flipkart were Rs 8,771 crore. They rose by 68% in comparison to 2015-2016. On the other hand, the revenues rose by 29% to Rs 19,854 crore.

Walmart, of course understands this. It is basically paying for access to India's huge retail market, which it hasn't been able to tap through the physical format, given the prevailing regulations. Whether it is able to make money out of the process remains to be seen. An article in the Harvard Business Review points out: "Study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90%." What happens to Flipmart or Walkart only time will tell, but the past evidence isn't too good.

Meanwhile, Sachin Bansal, one of the owners of Flipkart, is now leaving the company by selling his shares to Walmart.

This is happening because Walmart wants only one of the founders on the board of the new Flipkart. Media reports suggest that Sachin Bansal is likely to earn a billion dollars by selling his 5.5% stake.

With Walmart's promise of everyday low pricing, many sellers on Flipkart, will bite the dust. And given that they have already started to make noise. A spokesperson of the All India Online Vendors' Association (AIOVA) said that Walmart might bring in its own private labels at very low prices and destroy them in the process.

As he said: "These products would be brought in at hyper-competitive prices, which will cannibalise the market and make it difficult for other sellers to operate. We are studying the situation and will take appropriate action, including the legal route, if necessary."