Wal-Mart will offer to buy up to 86% of Flipkart

Wal-Mart Inc will offer to buy as much as 86% of India’s largest online retailer Flipkart in a deal that is expected to be signed as early as next week, according to three sources aware of the protracted negotiations.
 
Flipkart’s early backer, New York-based Tiger Global Management and Japan’s SoftBank Corp, which hold 20% each in Flipkart, are expected to sell a big part of their stake to help give the Bentonville-based giant a large majority stake in the company.
 
“Wal-Mart’s final shareholding is likely to end up more close to 51% than 86%,” according to one of the sources mentioned above, saying that investors are not likely to sell their entire stakes.
 
Most other shareholders too are expected to toe the same line, except for the ten-year-old company’s co-founder and current executive chairman Sachin Bansal and the Chinese internet giant Tencent, sources told ET. While Bansal holds 5.5% stake in Singapore registered Flipkart, Tencent holds about 7%.
 
Tencent and Walmart are both shareholders in Chinese online retail company JD.com.
 
The other significant stakeholders in the Bengaluru-based online retail company include early investor Accel Partners, South African media conglomerate Naspers and US-based online marketplace eBay.
 
“While Wal-Mart has offered to buy the entire stake held by all these shareholders, it is not final if all of them will agree to sell their entire stakes,” said the second person cited above. “The deal should be signed off next week and will probably take at least another 3 months to close the deal,” the source said referring to clearances like Competition Commission of India (CCI) approval.
 
Walmart declined to comment on the queries sent by ET while Flipkart and Tencent did not respond as of press time.
The deal, if successful, will value Flipkart at around $18-20 billion and the stake sale by existing shareholders will happen at a discount to this, final negotiations for which are still being worked out. But Wal-Mart will improve the price from the $10-12 billion it was offering for secondary share purchases earlier, said a second source.
 
Flipkart’s chief executive Kalyan Krishnamurthy will continue for the time being, although it is not clear what role cofounders Sachin Bansal and Binny Bansal will play once the deal fructifies. The two Bansals, who are not related to each other, set up Flipkart in 2007 as an online book retailing venture. The two graduated from IIT-Delhi and put in a stint at the global development centre of Amazon in Bengaluru before turning entrepreneurs.
 
The current deal is now in the final phase of negotiations with details such as terms of the transaction like liquidation preference of select shareholders, resolving tax issues and structuring being fleshed out, so that there are no regulatory issues to delay the closure.
 
Liquidation preference is a clause which specifies which investors get paid first and how much they get paid in the event of sale of the company, and is common in private technology investment.
 
“Some of the late-stage investors in Flipkart have liquidation preference of 1.5-2x,” said a third person familiar with the details. If the deal goes through, it will be one of the biggest foreign direct investments (FDI) in the country over the last several years.
 
Prior to this, Walmart had entered the Indian retail market with a 50% stake in a joint venture with Bharti Enterprises only to have the partnership ended in 2013 after the alliance turned rocky. The retailer steered clear of any Indian partnerships until September 2016, when it began investment discussions with Flipkart, which was first reported by ET.
 
The paper was also the first to report on Walmart being in advanced talks to pick up a stake in the e-commerce company in its January 31 edition. Walmart CEO Doug McMillon led a delegation that visited Flipkart’s Bengaluru office which included Marc Lore, CEO of Walmart e-commerce and Judith McKenna, CEO of Walmart International in January
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