Published: Thu, May 10, 2018
Markets | By Erika Turner

Great work (again) Naspers: Flipkart deal delivers 265% profit for shareholders

Great work (again) Naspers: Flipkart deal delivers 265% profit for shareholders

"The investment underscores our commitment to sustained job creation and investment in India, one of the world's largest and fastest-growing economies", said Walmart.

The deal - Walmart's biggest ever - gives it greater access to India's e-commerce market, which Morgan Stanley has estimated will grow to $200 billion in about a decade.

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.

Walmart has historically been a heavyweight in physical stores in the United States and has struggled to catch up with Amazon online.

There has been months of speculation that Walmart was preparing to buy Flipkart but both have repeatedly declined to comment on the talks.

But instead of competing with Flipkart, Walmart has essentially taken over the company.

In a $16 billion deal, the USA retail behemoth secured an acquisition of 77 percent in the group's business - the remainder of which will be held by current investors, including Flipkart co-founder and CEO Binny Bansal, Microsoft, Tiger Global and Tencent.

Starting May 9th, when the deal was officially announced, Indian e-commerce sector will be known by these two definitions: Era before May 9th and Era after May 9th.

India allows 100% FDI in e-commerce marketplace subject to certain restrictions.

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But in the holiday quarter, USA online sales growth slowed considerably and the company said it would shift some resources away from jet.com to walmart.com, a disappointing turn of events that could help explain investors' anxiety about the Flipkart news.

After the deal is closed, Binny Bansal, co-founder and Group CEO at Flipkart, will continue to hold the same position. He started his career with an IT firm Techspan in 2005 and then joined Amazon Web Services in January 2006. Flipkart now sells everything from mobile phones, televisions and juicers to running shoes, sofas and beauty products.

At a town hall yesterday, Flipkart's second co-founder and group CEO Binny Bansal told employees that Sachin was "not part of the platform anymore".

The companies said the board makeup was yet to be decided but that Flipkart and Walmart would remain distinct brands.

Till the time a regulator is constituted, the deal should be put in abeyance by the government and a close scrutiny should be held of the entire deal, he added. The acquisition surpasses Walmart's $10.8 billion deal to buy Britain's Asda in 1999 and its acquisition two years ago of online retailer Jet.com for more than $3 billion.

The retail giant declined to give a specific timetable on profitability, saying only that Flipkart's losses should decline "in the mid to long term". Walmart's business in India was previously focused only on selling items directly to small businesses though its Best Price stores.

According to Forrester Data, the Indian online retail market is around $20 billion in 2017 (2.4% of total retail market in India), which is still relatively small when compared to the penetration rates of other mature markets.

Flipkart rejigged its management and Binny took over as CEO.

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