Last mile hiccups

Many recent partnerships and business proposals are facing viability questions as well as suggestions for restructuring

This seems to be a season of last mile hurdles. Whether it’s Walmart-Flipkart deal, Tata-Thyssenkrupp joint venture or Air India disinvestment, there’s more than a common thread joining them. In all three cases, investors and stakeholders have questioned the viability of the business plan just when everything looked done. Also in all three, there are suggestions to restructure and renegotiate, for very different reasons of course. The outcome will depend on the willingness of the businesses (in Walmart-Flipkart and Tata-Thyssenkrupp deals) and the government (for Air India stake sale) to go that extra mile. 

Walmart went ahead and announced its decision to buy a controlling stake in Flipkart for $16 billion, making shareholders angry over what they believe is an excessively expensive deal, and now Competition Commission of India (CCI) is examining if the transaction should be restructured. The proposed Tata-Thyssenkrupp JV is stuck as workers and investors say they are unconvinced about such a partnership. And, German steel major Thyssenkrupp is wanting to renegotiate the deal with Tata Steel. In the case of Air India, the government braved the odds by inviting expression of interest despite no investor interest due to lack of business viability, and the result was zero bids. Officials, who had hoped bidders would queue up and were disappointed to find none as the deadline went past, have now indicated that the government would revive the effort to sell the national carrier, this time without retaining even a minority stake.

So, this is action time for all those facing a last mile hurdle. Tatas would undoubtedly do all it takes, including multiple trips by executives and bankers to Germany, to finalise a JV with Thyssenkrupp and create Europe’s second largest steelmaker after Lakshmi Mittal's ArcelorMittal. The outcome will depend on the level of resistance by workers and investors and how much Tatas would renegotiate. The deal, which looked like a job done last September, is in reality far from that as things emerge. 

According to reports, in August 2017, Tata Sons Chairman N Chandrasekaran flew to Duisburg and Essen in Germany to meet the founding families of Thyssen and Krupp for the mega merger that was being negotiated for more than two years. After the MoU between the two in September 2017, Chandrasekaran had said, “the Tata Group and Thyssenkrupp have a strong heritage in the global steel industry and share similar culture and values.” He had also said that the proposed JV in Europe was based on very strong fundamentals. Something has changed in between, revealing the last mile cracks. 

The activity around Air India disinvestment is no less. But it looks less convincing. High-level meetings are being planned and advisors are doing their post mortem of why there were no takers for Air India. But the government and businesses are still not on the same page. The overall sense is that even if the bid conditions are relaxed, aviation majors are unlikely to come running for the government’s next go at Air India disinvestment ahead of the 2019 General Elections. Businesses have to be ready to bid, they are not right now, those in the know say. 

In the case of the Walmart-Flipkart deal, nothing could have looked more firm a month ago. The top management of the biggest retail chain of the world were in India making announcements, meeting the media and interacting with the employees of the acquired company - Flipkart. Walmart has also told the Securities and Exchange Commission (SEC) in the US that the deal would be completed by end of this year. The mood was upbeat then. Nobody would have imagined at that point that CCI would have any issue with the Walmart-Flipkart deal. If sources are to be believed, it was Amazon that pulled out from its deal talks with Flipkart as such a transaction would have indeed faced a CCI hurdle. 

But those aware of the developments say CCI may have detected gaps in the Walmart filings with the fair trade regulator. It's tough to say how Walmart may respond if it was told to change the structure of the deal. But such a verdict from CCI may give hope to angry Walmart shareholders looking for an escape route after a pricey deal. Investors and Flipkart stakeholders wouldn't find it funny though, if Walmart returns to the table for renegotiating the deal value or if it decides to come into the Indian online market on its own without any partnership burden. Thoughts go back to October 2013 when Walmart and Sunil Mittal’s Bharti group had ended their much celebrated partnership, and the American chain has operated on its own ever since then in the cash and carry space in India.