Published: Thu, May 10, 2018
Markets | By Noel Gibbs

Walmart shares tumble over 4%; m-cap falls almost $10 billion

Walmart shares tumble over 4%; m-cap falls almost $10 billion

In a deal announced on Wednesday, Walmart has acquired roughly 77% stake in Walmart for approximately $16 billion.

Indian tax authorities are said to be closely watching the Walmart-Flipkart deal and may look to slap a 20 per cent withholding tax on what appears to be an offshore transaction, rekindling memories of the controversial Vodafone-Hutchison deal in 2007.

"This investment is of enormous importance for India and will help fuel our ambition to deepen our connection with buyers and sellers and to create the next wave of retail in India", according to Bansal, who is group CEO at Flipkart.

Sachin Bansal (right), a co-founder of Flipkart, will leave the company. "While e-commerce is still a relatively small part of retail in India, we see great potential to grow".

Softbank, one of Flipkart's biggest investors, held an earnings presentation on Tuesday and let news of the deal slip slightly early.

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In a country where hyper-local mom-and-pop stores dominate, Walmart and Amazon are betting that groceries will emerge as a sweet spot.

"Flipkart will diversify its inventory to attract more Indian consumer segments that haven't started shopping online", said Lee.

Meanwhile, the two former Amazon employees, Sachin Bansal and Binny Bansal, steadily grew Flipkart from the book-selling company they founded in a two-bedroom apartment in Bangalore.

The acquisition, amounting to $16 billion, is the costliest ever in the e-commerce sector.

Walmart's business in India had previously been focused on small businesses.

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The Confederation of All India Traders (CAIT) said the deal is nothing but a clear attempt to control and dominate the retail trade in India by Walmart through e-commerce in the long run.

S&P lowered Walmart's outlook to negative from stable, citing increasing leverage and risks stemming from the company's spending to expand online and globally as it continues its share buyback programme.

The head of Japanese technology company SoftBank Group Corp. said it had reached a deal to sell its Flipkart stake to Walmart.

Despite its size and global clout, Walmart has found it necessary to forge alliances in its battle against Amazon, which a year ago bought Whole Foods Market to gain a foothold in the USA grocery industry.

Though Flipkart owned, the latter operated as an independent entity. The companies said they're also in talks with other potential investors, which could result in the U.S. company's stake being lowered, though it will retain majority ownership.

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Walmart chief executive Doug McMillon said the purchase is about "setting the company up for growth and profits in the future". Even so, the company would retain clear majority ownership.

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