India’s leading e-commerce firm Flipkart reached out to global internet giant Amazon.com Inc. for a potential sale less than a year after its chairman said India needs to follow the Chinese example of promoting local companies over foreign ones, two people familiar with the matter said.
In December 2016, Flipkart chairman Sachin Bansal had called for a level-playing field for Indian start-ups to compete effectively against global companies. “…What we need to do is what at some level China did. They told the world that we need your capital but we don’t need your companies,” said Bansal, implying India should welcome financial investors but favour local start-ups over foreign companies that want to have their own operations here.
Flipkart dialled Amazon after Walmart revived talks for a potential investment, the two people cited above said on condition of anonymity. In late 2016, initial talks between Walmart and Flipkart stalled and Flipkart went on to raise $3 billion in two rounds of funds from Tencent, SoftBank, eBay and Microsoft.
This time in late 2017, however, Walmart wanted to buy a majority stake in Flipkart, prompting the latter to seek other suitors to get a better price, the people cited above said.
Initially, Amazon didn’t show interest. But as Flipkart’s talks with Walmart progressed, Flipkart’s bankers reached out to Amazon again last month, the people said.
Mint reported on Wednesday that Amazon may submit a rival offer to buy Flipkart.
A deal between the country’s two largest e-commerce firms would create a monopoly in online retail and draw the attention of anti-trust regulator Competition Commission of India (CCI).
However, Flipkart-Walmart deal is still more likely to go through, the Mint report said. Walmart is already in talks to buy 55% of Flipkart through a mix of primary and secondary share purchases in a deal that could value Flipkart at $21 billion.
The stakes are high for all the three companies.
An exit at a price of $21 billion will be a coup for Flipkart, which was struggling to hold off Amazon until late 2016.
For Amazon, the entry of Walmart into India will be an extension of the biggest battle it has ever fought in its 24-year history.
And for Walmart, a buyout of Flipkart may be the best route to enter India’s retail market in a country that still bans foreign direct investment (FDI) in retail. Walmart’s previous attempt at forging an offline presence in India through the wholesale retail route collapsed.
In October 2013, Bharti Enterprises Ltd and Walmart called off their joint venture Bharti-Walmart after a troubled five-year spell that was marked by allegations of investment rules violations and mismanagement.
The potential Flipkart sale has few precedents, even globally. But even in the US, both Amazon and Walmart have shown they are willing to do things they didn’t do earlier in order to win.
Walmart bought online retailer Jet.com for $3 billion in August 2016 to accelerate its online push. Less than a year later, Amazon surprised the world by buying offline retail chain Whole Foods for as much as $13.7 billion.
A buyout of Flipkart by either Walmart or Amazon will make India a key battlefront in the fight between the two American retail giants. India’s e-commerce market touched $17.8 billion last year and is expected to grow to more than $28 billion this year, according to RedSeer Consulting.
Flipkart’s acquisition would also be one of the top two acquisitions for both Amazon and Walmart.
Walmart’s biggest purchase to date is its $10.8 billion purchase of British retail chain Asda in 1999. The company has been on an acquisition spree over the past 18 months. Apart from Jet, it has also purchased two other online retailers Bonobos and Shoes.com as well as Parcel Inc, an e-commerce logistics provider. The Wall Street Journal reported on 29 March that Walmart is in early talks to buy insurer Humana, which is valued at close to $40 billion.
Source: Mint