The rumors are true: Walmart has bought a controlling stake in India’s Flipkart. This isn’t a straight-up acquisition, however, because, rather than going it alone, the U.S. retailer is enlisting strategic allies as it takes its fight to Amazon in a new region.
Walmart has an existing offline retail business in India, but enter the online space puts it up against Amazon, which has made massive strides since entering India in 2012.
That perhaps calls for something special, which is one reason why Walmart is buying just 77 percent of Flipkart and leaving space for others with expertise to come join.
Walmart confirmed that “some” existing investors will retain their stakes, including Tencent — the $500 billion Chinese giant — and Tiger Global, both of which have board sets, and Microsoft, which was part of a $1.4 billion investment last year. Added to that, Flipkart co-founder Binny Bansal has committed to stay retain his shares, although there’s no word on fellow co-founder Sachin Bansal who had been tipped to move on.
Beyond those three strategic Flipkart backers, Walmart said it is in ongoing discussions with “with additional potential investors who may join the round.”
Google is one who has been linked with a deal but you can imagine that Walmart — very much a physical retail specialist — will be looking to tap the world of tech and Asian partners to help gain an advantage over Amazon, which is broadly thought to have closed the gap on Flipkart in recent years.
Walmart is indicating that the new backers will buy a part of its equity if they invest, but it said it will “retain clear majority ownership” regardless of who joins.
“One of the things that was important to us here was having partners alongside us as well. So having Tencent, Microsoft and Tiger Global who are already investors in this business is really powerful in terms of the model that we’re creating,” Judith McKenna, Walmart COO, said on a call with investors following today’s announcement.
“[Flipkart] will be run through an independent board who will have some Walmart representation. We think that structure will best keep the entrepreneurial side of this business and guide it strategically, too,” McKenna added.
Walmart declined to give a timeline on when it might have news about the prospective investors.
Despite that, a number of investors have exited entirely with impressive returns, including SoftBank — which sunk a then-Indian record investment into Flipkart via its Vision Fund last year — Naspers and eBay.
In the more immediate future, Walmart is putting $2 billion of fresh capital into the business which Flipkart will be able to spend on growth and existing strategies.
Interestingly, too, Walmart is open to allowing Flipkart to IPO as a listed subsidiary in the future. That would help maintain incentives for employees and fulfill the ambition of management, McKenna said.
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