Written By Varsha Bansal, ET Bureau
BENGALURU: US-based online retail giant Amazon has thrown its hat in the ring to acquire India’s largest online retailer Flipkart as it looks to counter rival Walmart Stores’ attempt to gain a significant foothold in the market. Amazon and Flipkart have initiated talks a few weeks ago for an acquisition even though a bid is yet to be submitted, according to two people familiar with the development.
US-based retail giant Walmart Stores, which has been in discussions with Flipkart for over two months, continues to be the most likely contender but is negotiating on the price of secondary shares.
Walmart is looking to acquire the secondary shares in Flipkart at a valuation of $10-12 billion, which is much lower than the expectation of Flipkart’s investors who want their shares to be acquired at closer to the primary round valuation of $20-22 billion, according to one of the sources mentioned above. This has led to Flipkart board agreeing to open up conversations with other potential suitors — including Amazon India. “Amazon and Flipkart have been talking for a few weeks now but it hasn’t progressed as much as Walmart talks which have been going on for two months,” said the second source mentioned above, adding that a transaction with Walmart is the most likely outcome. “With Walmart they can run it as an independent company and Flipkart legacy can continue.”
For a transaction to go through, “Amazon’s offer has to be as good as Walmart’s,” added this source. Walmart did not respond to queries sent by ET at the time the story went to press. Flipkart declined to comment and an Amazon spokesperson said “we do not offer comments on rumours and speculations.”
Mint reported about the latest discussions between Flipkart and Amazon on Wednesday. ET had reported about similar discussions between Amazon and Flipkart in March 2016. ET was the first to report on Walmart being in advanced talks to pick up a stake in the ecommerce company in its January 31 edition. Walmart has been aggressively expanding its presence in the US online retail market to take on Amazon after buying Jet.com for $3 billion in 2016. But an acquisition of a majority stake in Flipkart would be its biggest investment in the online space as it looks to build an omnichannel play.
Walmart has taken time to get its strategy right in India, a market where rival Amazon has made plain its aggressive intent, having committed investments of over $5 billion to build logistics infrastructure and also woo customers with hefty discounts and selected offerings including Prime Video. Walmart, which had aggressively lobbied the Indian government for an open market for foreign retailers in the past, adopted a morecautious stance after the breakdown of its joint venture with Bharti Enterprises five years ago.
Experts tracking this space believe that a possible Amazon-Flipkart deal could raise objections from the industry about the duo cannibalising the ecommerce market. Moreover, a possible Amazon-Flipkart acquisition could lead to a close scrutiny by the Competition Commission of India (CCI).
“My sense is that a transaction between these direct competitors, given their size and presence will need to be approved by the CCI and in that process is likely to be more closely scrutinised in comparison to a Walmart-Flipkart deal,” said Ravisekhar Nair, partner, Competition Law at ELP. “That said, the CCI has never blocked a transaction in the last seven years that we know of. So, the CCI, after reviewing the transaction can potentially approve it subject to structural and/or behavioural commitments.”
Other experts also said that there could be objections about two large competitors who have impacted other retailers through aggressive promotions and discounts, India’s retail market is still large. “The defence would be that ecommerce is still a tiny fraction of India’s retail market,” said Devangshu Dutta, chief executive of retail consulting firm Third Eyesight.