Indian regulators approve $16bn Walmart/Flipkart merger

October 2018 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

October 2018 Issue

In mid-August, the Competition Commission of India (CCI) announced that it had cleared Walmart Inc’s proposed $16bn acquisition of Flipkart.

The deal was originally announced in May when Walmart agreed to acquire a 77 percent stake in Flipkart. Walmart, which will become Flipkart’s largest shareholder, expects to close the deal by the end of 2018.

The CCI announced the deal approval via a single-line statement on Twitter, noting that it “approves proposed acquisition of Flipkart Private Limited by Wal-Mart International Holdings, Inc.”

In a statement acknowledging the CCI’s decision, Walmart reiterated its commitment to contributing to the Indian economy, noting that it would continue to support smaller farmers and manufacturers. “Flipkart is a prominent player in India with a strong, entrepreneurial leadership team that is a good cultural fit with Walmart,” the company said. “We believe that the combination of Walmart’s global expertise and Flipkart will position us for long-term success and enable us to contribute to economic growth.”

Flipkart also welcomed the CCI’s decision in a statement. “By combining Walmart’s global expertise with our leadership position and Indian ethos, we believe we are positioned for long-term success and contribution to the Indian economy and society.”

Despite the CCI’s clearance, opposition to the deal remains strong among traders and other bodies. There are fears that the merger could create unfair competition. In June, more than 100 trader organisations announced their opposition to the deal, claiming that it would cause “irreversible damage” to small traders across India and could jeopardise thousands of jobs.

The Confederation of All India Traders (CAIT) has vowed to continue to fight the deal. “It is most unfortunate that leaving aside the objections raised by CAIT in CCI, the Commission has approved the deal,” said Praveen Khandelwal, secretary-general of the CAIT. “Without giving any opportunity of hearing to CAIT, the CCI has flayed principle of natural justice. We deeply condemn such an attitude and will certainly move to Higher Court against the decision of CCI.” CAIT called an emergency meeting of its governing council on 19 August at Nagpur, where the group would finalise its strategy for a nationwide movement.

The acquisition of Flipkart will be a welcome boon for the company’s backers in India, who stand to make around $14bn by selling their stakes in the company to Walmart. Venture capital firms Accel and Tiger Global invested in the company more than eight years ago when Flipkart was valued at just $50m. Equally, the SoftBank Vision Fund invested $2.5bn in August 2017 for a 20 percent stake in the company; it will exit Flipkart with $4bn.

For Walmart, the acquisition of Flipkart’s business will help the company to not only improve its offering outside the US, it will also enhance its online presence, which accounts for just 3 percent of its business in the US. Flipkart, since its founding 2007, has grown to become India’s biggest e-commerce company. “India is one of the most attractive retail markets in the world, given its size and growth rate,” said Doug McMillon, Walmart’s president and chief executive, in a statement announcing the deal.

Walmart’s existing presence in India is limited to 21 wholesale stores; however, by acquiring Flipkart the company will gain access to the country’s rapidly expanding e-commerce industry. In the financial year which ended March 2018, Flipkart sold around $7.5bn worth of products, up 50 percent year-on-year. Net sales were around $4.6bn. Though some analysts believe that the company will not be profitable for a few years to come, by acquiring Flipkart, Walmart will hold an advantage over rivals, including Amazon, which had expressed interest for the Indian company. However, a potential Amazon/Flipkart merger would likely have attracted considerable antitrust scrutiny given that their combined sales would have added up to almost 90 percent of India’s e-commerce market.

Richard Summerfield