Tuesday, 22 May, 2018

Is Walmart chasing a mirage in Flipkart with the $16-billion acquisition?

Softbank May Invest Whopping $3 Bn in Paytm Mall, Thanks To Flipkart SoftBank in Talks with Walmart on Selling its Flipkart Stake
Ginger Lawrence | 14 May, 2018, 12:47

"Walmart should not have any issue with that", he said, asking not to be named. Singapore-registered Flipkart holds a majority stake in Flipkart India.

On Wednesday, all significant shareholders in Flipkart like Naspers, venture fund Accel Partners and eBay had confirmed they were selling their shares to Walmart.

"Walmart wants to make sure that a higher price is not asked for at a later date by SoftBank", a person related to the deal said.

Walmart has already revealed plans for an initial public offering (IPO) for Flipkart, within four years of the completion of this acquisition. Notably, if SoftBank sells its 22.3% stake in Flipkart to Walmart now or any time before August 2019 then according to India's capital gain tax law it may have to give 40% (of profit) as short-term capital gain tax to the Indian taxman, which a massive $600 million.

SoftBank will get around $4 billion if it sells its entire 21 per cent stake in Flipkart.

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On 9 May, hours before Walmart was scheduled to announce the Flipkart acquisition, SoftBank chief executive Masayoshi Son told an investor call on his company's earnings that Walmart had agreed to buy a controlling stake in the Indian e-commerce company.

SoftBank is undecided on selling its Flipkart shares because of tax implications and also because it sees a further increase in valuation for Flipkart.

However, if SoftBank decides to stay invested in the Bengaluru-based company, it will help bring checks and balances. Softbank had also invested about $900 million in Snapdeal in the hope the e-tailer would be able to challenge Flipkart's market leadership.

Other deciding factors would be Son's relationship with Walmart and that SoftBank likes to be a long-term investor, sources said, adding the Japanese conglomerate is very bullish on India and sees enormous opportunities for growth of investment. The report added that Walmart told the SEC in regulatory filings that the United States retail giant has an option to invest "an additional $3 Bn in Flipkart at the same valuation within a year of completing the acquisition of a 77% stake. There will be more balance of power if SoftBank is there in the company", he said, asking not to be named as Walmart is a client of his company. "Walmart could raise its shareholding by an additional 10-12%".

The right to buy additional stake could become crucial in Walmart's overall scheme of things at Flipkart after SoftBank's reversal in plans.