Walmart shares fell Wednesday as the US retailer announced it would purchase a controlling stake in Indian eCommerce business Flipkart. The deal will see Walmart increase its foothold in Indian eCommerce, a market which is expected to surge in the next decade.
The announcement also shows that a late, albeit unconfirmed, bid for Flipkart by Amazon, was rejected.
Walmart shares ended the US Wednesday trading session 3.13% lower at $83.06. The stock is a little higher in after-hours activity.
Walmart’s international growth
Walmart announced it had signed “definitive agreements” with Flipkart to purchase around 77% of the eCommerce business for £16 billion. The remaining shareholders in the Indian company will be:
- Co-founder Binny Bansal.
- Tencent Holdings.
- Tiger Global.
- Microsoft Corp.
“India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of eCommerce in the market,” said Walmart President and CEO, Doug McMillon.
“As a company, we are transforming globally to meet and exceed the needs of customers and we look forward to working with Flipkart to grow in this critical market,” McMillon added.
Flipkart’s co-founder was equally upbeat on the deal.
“This investment is of immense importance for India and will help fuel our ambition to deepen our connection with buyers and sellers and to create the next wave of retail in India,” said Binny Bansal, Flipkart’s co-founder and group CEO.
“While eCommerce is still a relatively small part of retail in India, we see great potential to grow. Walmart is the ideal partner for the next phase of our journey,” Bansal said.
Companies align skills
The move fits perfectly with Walmart’s international growth plan. While Flipkart will benefit from the investment as it seeks to grow and become a publicly listed company.
“Flipkart will leverage Walmart’s omni-channel retail expertise, grocery and general merchandise supply-chain knowledge and financial strength, while Flipkart’s talent, technology, customer insights and agile and innovative culture will benefit Walmart in India and across the globe,” Walmart said.
However, the deal will come at a cost to Walmart. The US giant expects the deal to negatively impact its 2019 earnings per share by between $0.25 - $0.30. That’s seen increasing in 2020, to a negative impact of some $0.60.