Walmart's deal to buy Flipkart came with an interesting caveat

Walmart's deal to buy Flipkart came with an interesting caveat

While SoftBank examines its liabilities and benefits after selling its stake in Flipkart, Walmart reportedly believes that even if SoftBank decides against selling the stake, it won't make any "material difference" to its plans for Flipkart. Earlier, SoftBank was the largest stakeholder in Flipkart. This investment, according to an ET report is subject to Softbank being freed from a restrictive clause that does not allow it to invest over $500 million in Paytm Mall, until 2020. It also said it supported Flipkart's ambition to go public.

The Hindu Business Line on 12 April, citing data by start-up research and data analytics firm Tracxn, reported that SoftBank has invested more than $8 billion in the Indian e-commerce and internet market over the past five years. Now with Walmart as an investor, Flipkart will be able to leverage the USA giant's grocery and general merchandise supply-chain knowledge to build this category, something which Flipkart has piloted in Bengaluru but has not been able to scale up significantly. He has announced the finalization of the deal between Flipkart and Walmart. The official sources also suggest that SoftBank will not sell its stake.

This will require Flipkart to become a $100-billion (Rs 6,700 billion) company in terms of revenues within the next few years, given it achieves a net profit margin similar to that of Walmart's, at 2.1 per cent. Amazon.com too has a. "Walmart will have the majority with or without SoftBank".

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. The agreement will effectively result in a transfer of ultimate ownership in Flipkart India to Walmart.

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"So if SoftBank says something that Walmart doesn't agree with, there still have to be discussions".

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

Cutting Flipkart's massive losses while keeping Amazon India at bay, building up the company's depleted senior leadership team, retaining key middle managers and making the combination of Binny Bansal and CEO Kalyan Krishnamurthy work are some of the immediate challenges that Walmart faces.

Is Walmart chasing a mirage by acquiring Flipkart at a total valuation of almost $21 billion?

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