US giant retailer Walmart Inc. on Wednesday acquired a 77 per cent stake in Flipkart. It is about $16 billion, the biggest acquisition till date. The deal values the 11-year old Indian e-commerce firm at $20.8 billion. Sachin Bansal, co-founder of Flipkart with Binny Bansal will exit the company after the deal. Japan’s SoftBank, an investor, will also exit the company by selling its entire 20 per cent stake in Flipkart.
Walmart had entered India in 2009 through a joint venture with Bharti Enterprises and later took full control of that venture in 2013. It currently operates about 20 wholesale stores in the country that serve small businesses.
For Walmart, the Flipkart deal will bring a great advantage in terms of presence in the Indian e-commerce market. Acquiring a stake in Flipkart will help Walmart to tap into the India’s retail market without building stores. India is the next big potential prize for global retailers after the US and China, where foreign retailers have made little progress against Alibaba Group Holding.
However, investors punished Walmart for this big decision on the same day.
Walmart loses $10 billion market cap after Flipkart deal
Walmart’s investors reacted negatively to news of the retail giant’s Flipkart deal, wiping away $10 billion worth of Walmart’s market capitalization, as investors punished the stock in early morning trading on the New York Stock Exchange.
Walmart, however, added that it expected operating losses after the deal, along with a negative impact to its earnings per share.
Walmart said in a statement that “if the transaction were to close at the end of the second quarter of this fiscal year, Walmart expects a negative impact to FY19 EPS of approximately $0.25 to $0.30, which includes incremental interest expense related to the investment. In FY20, as we look to accelerate growth in this important market, Walmart anticipates an EPS headwind in total of around $0.60 per share, comprised of:
- Operating losses of approximately $0.40 to $0.45 per share, assuming minimal tax benefit for losses in the near to mid-term. This amount includes about $0.05 per share related to amortization of intangible assets and depreciation of short lived assets resulting from purchase accounting, which will only last for a few years post-closing.
- Interest expense of approximately $0.15 per share.”