7/29/2020 Walmart's reverse merger with Flipkart may bulk up valuations ahead of IPO | Business Standard News

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Walmart's reverse merger with

Flipkart may bulk up valuations
ahead of IPO
The reverse merger may bulk up valuations ahead of an IPO in two years, but questions about the performance
of the wholesale business remain

Topics
Flipkart | Walmart | Reliance Jio

Nivedita Mookerji 
Last Updated at July 27, 2020 23:34 IST

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7/29/2020 Walmart's reverse merger with Flipkart may bulk up valuations ahead of IPO | Business Standard News

In the run up to the international listing, Flipkart would logically take steps to boost its valuation, an executive
pointed out

When Walmart India held a town hall meeting at its Gurugram

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headquarters on July 23 to announce a reverse merger with
Flipkart CEO assures
employees there will be no Flipkart, some 4,000 employees were taken aback by the group’s
layo s, salary cuts consolidation move during the pandemic. Although this deal had
been in the works after the American retail major Walmart
Amid race to woo small
traders, CAIT readies online acquired a majority stake in Flipkart for $16 billion in 2018, the
portal for kiranas timing of the announcement was unusual when a large part of the
organisation is still working from home due to Covid-19. But as an
Coronavirus lockdown:
Shadow looms over analyst pointed out, businesses often take critical steps in
summer sales of Amazon, extraordinary times.
Flipkart
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The two immediate trigger points that may have fast-tracked
Retail arm to attract next set
Flipkart’s acquisition of Walmart India, which operates
R Best Price
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of global investors, says GLOBAL

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Modern Wholesale (cash-and-carry business), are Reliance Retail-
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Mukesh Ambani COVERAGE

owned JioMart’s aggressive play in e-grocery and the falling appeal

India business most
a ected due to Covid-19 of physical stores post-Covid-19. But more than anything else, it’s
outbreak, says Amazon long-term business sense and an aspiration for higher valuation
that prompted the Bentonville-based retail giant to consolidate its
loss-making Indian wholesale business (Best Price) with the e-

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7/29/2020 Walmart's reverse merger with Flipkart may bulk up valuations ahead of IPO | Business Standard News

commerce operation of Bengaluru-based Flipkart, say people close

to the development.

Bringing B2B and B2C businesses under one umbrella will not only
boost Flipkart’s ambition of starting an online wholesale operation,
but it is also seen as a move to help the start-up founded in 2007
strengthen its balance sheet and valuation before a public listing. A
company source con rmed that the latest consolidation would give
Flipkart a de nite llip for an initial public o ering (IPO) planned
for 2022 at a global exchange, preferably the US.

In the run up to the international listing, Flipkart would logically take steps to boost its valuation, an
executive pointed out. From close to $21 billion in 2018, the rm’s valuation rose to almost $25 billion
recently when Walmart Inc led an investment of $1.2 billion in Flipkart. Internal assessments suggest
Flipkart group’s valuation at around $35 billion, if Phone Pe (fully owned by Flipkart) is counted. With
Walmart Best Price joining the bouquet, the valuation should be even higher (the nancial details of the
latest transaction were not made available).

But there
could be
some hurdles
to the dream
IPO. Let’s look
at the current
wholesale
business of
Walmart
India, which
has accumulated losses of Rs 2,181 crore (up to March 2019). It runs 28 Best Price stores across the
country catering to 1.5 million members who are typically small businesses, including kiranas or mom
and pop stores. After 12 years of operating the wholesale business — till recently only through the brick-
and-mortar stores and subsequently adding online — physical store expansion will slow down
substantially. In fact, the company is looking at only opening those stores, which are in the planning
stage. No closures are being talked about at this point, some of the physical stores may be converted
into ful lment centres and warehouses for the merged Flipkart business.

There would also be uncertainties in roles of the Walmart India employees, including senior executives.
The actual transition will begin at the end of this year when the Gurugram o ce shifts to Bengaluru. In
January, Walmart India had let go of 100 senior executives, perhaps as a precursor to the consolidation.
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O cials said at this point, no downsizing has been planned. To allay employee fears, Kalyan COVID-19
COVID-19

Krishnamurthy, Chief Executive O cer (CEO) of Flipkart Group, had said last week, “The acquisition
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Walmart India adds a strong talent pool with deep expertise in the wholesale business that will
strengthen our position to address the needs of kiranas and MSMEs.’’ It’s another matter that Flipkart
veteran Adarsh Menon will spearhead the wholesale venture, while Walmart India CEO Sameer Aggarwal
will move to another role.

Although Walmart-Flipkart wholesale game-plan is to target about a $150 billion market out of a total pie
of $700 billion in the country, the consolidation marks the end of the multi-brand dream of the
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7/29/2020 Walmart's reverse merger with Flipkart may bulk up valuations ahead of IPO | Business Standard News

American retail giant. It entered India in 2007 in partnership with Bharti Enterprises in the midst of high-
decibel protests against the American retailer wanting to wipe out kirana businesses. Walmart could
never open multi-brand stores, as it did in the US and other parts of the world, to sell its products to the
Indian masses, even though the United Progressive Alliance (UPA) government permitted it with a 51 per
cent FDI limit. Guidelines such as mandatory sourcing from Indian MSMEs and statutory backend
infrastructure acted as hurdles for overseas players. The UK’s Tesco was the only player to apply and get
approval for multi-brand under the UPA rule, but it never expanded after the National Democratic
Alliance government opposed FDI in retail when it came to power at the Centre in 2014.

Walmart has been on its own in the wholesale business ever since it parted ways with Bharti in 2013
over di erences in running the India business and an unhelpful regulatory environment. Scott Price,
then Walmart Asia CEO, had famously said on the sidelines of a Bali summit, “We created a franchise in
retail with Bharti in the hope that there could be a potential freeing up (of FDI) that would allow it to
potentially be the base of the business. But frankly, the FDI (opportunity) has passed.’’

The proverbial seven-year itch after going solo has ended and Walmart India is about to tango with
Flipkart in wholesale. With online being the future and the pandemic changing shopping patterns, e-
commerce — which now has single-digit market share in the country — may change the landscape for
the American major as it competes with Je Bezos’ Amazon and Mukesh Ambani’s Jio.

Read our full coverage on Flipkart

First Published: Mon, July 27 2020. 23:16 IST

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