Amazon Squeezes Into Potential Walmart-Flipkart Deal, Offering $1 Billion Breakup Fee
BENGALURU, INDIA - Flipkart, which was founded in 2007 by two former Amazon employees and envisioned to be India’s Amazon, has since raised well over $6 billion, according to Forbes, including a $2.5 billion investment from Japanese multinational conglomerate SoftBank Vision Fund. This financial backing, coupled with Flipkart's current valuation of $18-$20 billion, as stated by an anonymous source to Inc 42, makes the company an ideal acquisition for any corporations, particularly Walmart and Amazon, looking to gain a footholding in the burgeoning Indian market.
With a large population and a relatively untapped market, India is an ideal location for businesses looking to expand their global footprint. Prior to Amazon’s expansion into the country, Flipkart was India’s biggest e-commerce company. Though it is currently unclear whether Amazon or Flipkart holds the largest market share, Forbes reports, the company is a force to be reckoned with.
If Walmart or Amazon acquire a majority stake in the company, they would acquire a large portion of India’s rapidly expanding e-commerce market, which is expected to grow to $200 billion by 2026, according to LiveMint. The company who purchases the stake will not only have an advantage over the other, but also over major international competitors like Alibaba. The deal offers Flipkart an opportunity to gain financial weight and a stronger, more efficient supply chain.
Though Flipkart was created by former Amazon employees, the company has now expressed that it is leaning towards selling the controlling stake to Walmart rather than Amazon because Walmart offers greater certainty. Because Walmart has no online retail presence in the country now, it faces fewer regulatory hurdles, according to Bloomberg Technology.
Though a deal with Walmart has been in the works for at least a year, the news source reports that Flipkart’s largest shareholder may prefer a sale to Amazon since Amazon has a track record of e-commerce success.
The stake that Walmart is currently in talks to purchase is a minority stake that could go up to 50 or 60 percent depending on which of Flipkart's current shareholders sell, reports Bloomberg Technology. Amazon continues to push for the deal out of fear that this share will grant Walmart a great deal of power in the emerging market.
In an attempt to dissuade Flipkart from partnering with Walmart, the company has offered a breakup fee, which Inc 42 reports is around $1 billion to $2 billion, an offer which may raise Flipkart’s valuation to over $20 billion. A breakup fee is a pre-set penalty offered by the payer in case the deal is terminated.
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