Walmart-Flipkart deal on track, but will Amazon pull a googly?

Even as Walmart’s bid to invest in Indian e-commerce giant Flipkart at a $20 billion valuation is nearing closure, the stage is still open for other investors to jump in and make a counter bid as no term sheet has been signed yet.

On Wednesday, Livemint reported that Amazon may submit a rival offer to buy Flipkart and has held early exploratory talks with regard to the same. However, the newspaper said that the deal between Flipkart and Walmart was more likely to go through.

A person close to the developments with whom Business Standard spoke said that the term sheet for Walmart to invest in Flipkart was close to being finalised, but until it is signed the potential for counterbids remains open. “Without the signing of the term sheet with Walmart, there is no exclusivity in the deal for now which means there is scope for other players to join the bid. However, it may get signed as soon as next week.”

Amazon had explored the option of buying Flipkart last year, but no such talks have been held recently, said another person in the know. Apart from Amazon, even Google had also explored investing in Flipkart, but talks with both the parties did not see much progress. 

While Walmart will invest directly in Flipkart at a valuation of $20 billion, secondary shares the company buys from existing investors will be at a lower valuation. Early investors in the company such as Accel, Tiger Global, Naspers and IDG are expected to sell all or most of their shares to Walmart.

Softbank, which invested $2.5 billion in Flipkart last August while at first was opposed to the deal is said to have agreed to allow Walmart to buy a stake larger than its own. The Japanese investor has also gone ahead an led a Rs 30 billion investment in rival platform Paytm Mall as it looks to hedge its bets in India’s fast-growing e-commerce market.

“While it is possible that Amazon might be looking at eliminating competition by making a bid, I doubt that they will. Over the years Amazon has had multiple opportunities to acquire Flipkart, so why now and at such a high valuation? I think it would be a big distraction for Amazon if they acquire Flipkart at this stage,” said Manish Maheshwari, former head of Flipkart’s Marketplace Business.

Walmarts is looking at its investment in Flipkart as a way to get a foothold in the vastly untapped Indian retail market while also taking on its arch nemesis Amazon. The US retailers earlier attempt to partner with Bharati to enter India failed and while it currently runs 21 cash-and-carry wholesale stores in the country under the Best Price Modern Wholesale brand, it remains a fringe player.

One of the biggest possibilities that could emerge out of Walmart investing in Flipkart is the ability to open offline retail stores in India. The investment which is being seen as strategically important for Walmart in Asia, will give the company not just a leg up over Amazon in online retail, but also in the offline market which continues to make up over 95 per cent of retail in India.

For Flipkart, the deal will not only give it access to massive capital to take on Amazon, but will also open the door for exclusive deals with global brands and will give it access to Walmart’s world-class sourcing. Experts have said that a Flipkart-Walmart marriage is the best scenario as it will allow the US retailer to take on both Amazon and Alibaba in India.