Walmart $16bn Flipkart deal: SoftBank uncertain, Google circling

Walmart $16bn Flipkart deal: SoftBank uncertain, Google circling

US retail giant Walmart confirmed this week that it is taking a majority stake in Flipkart, India’s leading ecommerce brand. As announced, the deal would see Walmart, the world’s largest company by revenue, take a 77 percent holding in the company for $16 billion, $2 billion of which will be equity funding to spur growth.

Internet of Business reported the proposed deal, which values Flipkart at $22 billion, in April.

However, the deal is more complex and uncertain than it appears. Last week, Amazon made a rival bid for a majority stake in the company. Sources close to the Walmart deal have suggested that Japan’s SoftBank, which holds a 21 percent investment in Flipkart, favoured a merger with Amazon India.

Amazon’s status as India’s number-two online retailer would have presented major regulatory hurdles, which may be why Flipkart went with its original suitor. Also, Microsoft – which itself holds a $1.4 billion stake in the company alongside eBay and China’s Tencent – is Flipkart’s exclusive cloud provider, a relationship that would have been threatened by Amazon coming onboard.

Softly, softly SoftBank

Reports have surfaced in India that SoftBank is now reconsidering the sale of its Flipkart investment.

Taking its 21 percent holding off the table would leave Walmart with a much-reduced 56 percent of the company – still a majority, but with SoftBank holding the balance of power. A considerable upside for the powerful Japanese company, which has numerous AI and robotics investments.

Also on the mind of SoftBank’s billionaire chief Masayoshi Son will be the potential tax liability of exiting a $2.5 billion investment just nine months after making it, which would reduce the $4 billion it stands to make.

Alphabet soup

The situation is made even more complex by reports that Google’s parent company, Alphabet, is also circling Flipkart, with a rumoured complementary investment of up to $3 billion.

Taking a stake in India’s largest cloud-based retailer would give Alphabet a foot in the door of a market of over one billion consumers – for all of its products, including Android phones – while keeping Amazon at bay.

Alphabet and Walmart have already partnered against Amazon in the US, through Google’s Express shopping service, which delivers Walmart produce.

So, taken together, the apparently simple mega-deal now appears to be a complex set of ongoing negotiations for the future of connected retail, fulfilment, and deliveries in India. Should Alphabet come onboard and SoftBank decide to remain at the table, then it becomes a question of who should sell what to Walmart, which could end up with a minority stake, albeit the largest single investment.

Should SoftBank sell up, then of course the deal may simply progress as billed. However, another potential outcome would be for SoftBank to remain at the table for long enough to gain more concessions and leverage from the deal, and then effectively sell out to Alphabet. This would leave Walmart with the majority stake it seeks, a new ally onboard in the shape of Alphabet – and an increasingly uneasy alliance with Microsoft in a joint hedge against Amazon’s dominance of retail (and in the long run, deliveries).

Internet of Business says

The context for all of these manoeuvres is that Amazon’s moves into automation, AI, the IoT, robotics, smart speakers, computer hardware, content, subscription services, deliveries, and healthcare have persuaded Walmart that it needs to get smarter – and fast – including in its retail heartland.

In recent months, Walmart has announced a range of projects which suggest that it intends to take the connected technology fight to Amazon, whose dominance of ecommerce in the US and Europe has pushed Walmart deep into its traditional corner.

Walmart has recently filed a number of patents in robotics and connected retail applications. These include an item identification system in its stores, as part of a smart shopping cart programme.

Another patent is for a customer wearable that logs shoppers into Walmart’s systems when they enter a store, tracks them as they move around, then logs them out when they leave. The company has also outlined plans for drone assistants, and systems that check the weight of cars when they leave Walmart car parks.

However, many of these moves are about bolstering Walmart’s in-store experience or securing its supply chain, rather than going head to head with Amazon online and in people’s homes.

The Flipkart deal – in whatever form it eventually takes – would give Walmart a massive ecommerce foothold in India, the biggest market outside of the US (in financial terms) and China, where brands such as Alibaba dominate.