US based world's largest retailer Walmart after a long round of speculation on Thursday officially announced that it would buy 77 per cent of stake in Flipkart for $16 billion. The deal would left Flipkart with a whopping value of $21 billion. Flipkart has been the most successful internet startup in India.
The Walmart-Flipkart deal would also leave the employees of the latter richer and some of them even dollar millionaires. If reports are to be believed around 3,000 employees in total, both former and current, are said to be holding shares. Flipkart has total 10,000 employees.
On Wednesday at the employee town hall, employees of Flipkart were in cheer when the co-founder Binny Bansal announced a 100 per cent buyback of vested ESOPs (employee stock options). According to the newspaper reports, the buyback could be at around $150 (Rs 10,000) a share.
Flipkart’s stock options are granted over a four-year period, with employees allowed to vest them every month after a one-year threshold.
But is the Walmart-Flipkart deal good for India? We have explained it in the below points.
1. First, let's talk about the importance of the Giant Walmart taking over Flipkart. As Walmart and Flipkart close the $16-billion deal, retail experts and trade associations expected a slight "rumble" or "a little bit of shiver" in the industry due to it.
Anil Talreja, partner Deloitte India, told DNA Money that just like any M&A this deal could also cause a "rumble" in the industry.
"I believe it (the deal) will create a rumble in the industry. Whenever there is an M&A, a little bit of shiver is felt, but that does not shake up sturdy businesses. I am a very strong believer of the fact that the Indian market is so large that nobody can say it will saturate," he said.
2. However, contradicting to analysts' views, Walmart's CEO said that the deal is good for the country as it will help create millions of jobs over time and help the economy through local sourcing of goods by the company.
It is pretty clear that this (deal) is good for customers and would create jobs and help society," he said at a select media roundtable here.
3. Vivek Mansingh, general partner, YourNest Capital Advisors Private Ltd, told DNA Money that while there were many positives in the deal, it had also built into it some geographical risks.
"Whenever, there is a large acquisition with some perceived risk by a large company – and of course there is risk in all business – shares of that company goes down. Having said that, in this deal there is a risk of a new geography (India). There is such a large exposure (of $16 billion). Then, there is the risk of (Walmart) acquiring an ecommerce company, which is so large, for the first time. They (Walmart) are a brick-and-mortal company, by and large. They do not have much online presence," he said.
4. One fear that is upper-most in investors' mind is that as Walmart scales up its acquired Indian ecommerce firm, there would be losses. Talreja said that any player foraying into the domestic market is well aware that India was a volume game and so would go for scale.
5.A presentation by Walmart-Flipkart investors shows that there were 443 million millennials along with 393 million generation Z or 66% of the population that could be taken as potential consumers of Walmart-Flipkart services.
6. It showed that e-commerce could see a huge surge in growth with 35% of population using internet and smartphone penetration expected to reach 58% by 2020 from 30% in 2017.
7. The Walmart-Flipkart deal would be one of the largest M&A deals in India, US-based world's largest retailer Walmart Inc has announced.
8. The said deal with Flipkart would make Walmart directly take on Amazon in Indian e-retail space.
9. According to market watchers, the decision is aimed at helping Walmart buy stake from a single entity rather than multiple parties. Flipkart had undertaken a similar move earlier this year, following the closing of its Softbank-Microsoft-Ebay deal.
10. India is a critical market for both Walmart and Amazon, and a deal with Flipkart would help either player in consolidating their position in the booming e-commerce market here.
