Walmart shares tumble over 4%, market cap falls almost $10 billion

Eileen GuzmanMay 10, 2018

The remainder will be held by existing shareholders, including Flipkart co-founder Binny Bansal, China's Tencent Holdings Ltd 0700.HK , Tiger Global Management and Microsoft Corp, the company said.

The Walmart statement made no reference to the exit of Flipkart co-founder Sachin Bansal or SoftBank Group, which was one of the largest investors in Flipkart through its Vision Fund.

India's online retail industry is expected to hit $73 billion a year by 2022 and predicted to grow to $200 billion in a decade as its middle class customer base grows every year and smartphone penetration increases.

The Walmart investment, company officials said, will also allow Flipkart to leverage Walmart's omnichannel retail expertise and supply chain knowledge while simultaneously providing Walmart insight into the Indian retail marketplace.

Bob van Dijk, group chief executive of Naspers, said India is one of the most exciting markets in the world.

Additionally, Walmart's investment includes $2 billion of new equity funding, which will help Flipkart accelerate growth in the future. Walmart said it will use a combination of newly issued debt and cash to finance the round. Walmart and Flipkart are also in discussions with additional potential investors who may join the round, which could result in a lower, but still majority stake for Walmart after completing the deal.

Walmart and Flipkart plan to operate as distinct brands, with their own operating structures in India.

Walmart expects the acquisition to have a negative impact of $0.25 to $0.30 a share in the 2019 fiscal year that ends in January and a negative impact of approximately $0.60 a share in the 2020 fiscal year.

Closing is expected later this calendar year, subject to regulatory approval.

Walmart said Flipkart's logistics, payments and apparel businesses offer new areas of growth.

"Walmart is purchasing Flipkart", Softbank CEO Masayoshi Son said during the presentation (speaking in Japanese with translation provided by a SoftBank representative). The US-based retailer had to fight with Seattle-based e-commerce giant Amazon for the deal. Now, Walmart is paying a hefty premium to buy its way into the pole position in India's e-commerce market, but it has not yet outlined any strategy that would keep it ahead of Amazon there. McMillon has led Walmart's efforts to boost global business. Walmart now sources almost United States dollars 3 billion worth of goods for its global stores from Indian firms. The biggest acquirer prior to the Walmart deal, incidentally, was a buyback of Flipkart shares worth $718 million in August 2017.

Flipkart had already sparked consolidation in the market in the last few years by snapping up fashion e-tailers Myntra and Jabong, and eBay's India arm, as it moved to snuff out rivals and grab a greater market share.

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