American e-commerce major Amazon has formally entered the battle for Flipkart, a move that may slow down rival Walmart’s effort to buy a controlling stake in the Bengaluru-headquartered firm. Sources indicated that Amazon, which aggressively competes with Flipkart in the India market, has put in a matching bid along with a $2-billion breakaway fee. While a competing bid could possibly raise Flipkart’s valuation, thereby helping investors, Walmart is learnt to be determined to strike a deal with India’s e-commerce poster boy.
Amazon has offered to buy a 60 percent stake in Flipkart. If the bid is accepted, the combined entity would more than dominate the country’s online retail market, a reason for the Competition Commission of India (CCI) to step in.An Amazon India spokesperson said the company doesn’t comment on rumours.Talks about Amazon making a counterbid to upset Walmart’s online play have been doing the rounds for a while. Softbank, a top investor in Flipkart, is believed to have been apprehensive about a deal with Walmart. In fact, SoftBank is pushing for a Flipkart-Amazon deal, sources said.
Walmart has agreed to invest around $12 billion to pick up about 60 percent in Flipkart, in a mix of primary and secondary sale. While the valuation of the primary component can be as high as $20 billion, the secondary component is understood to be at a lower valuation.From sparring in the US, Amazon and Walmart have now moved on to battleground India. Since January, news of Amazon buying another US retail giant Target has been rife as the company looks to increase its brick and mortar footprint. Target has the potential to be the second biggest acquisition for the company after Whole Foods, which it bought for over $13 billion. According to reports, Walmart has also been trying to close a deal with Target but the talks have not made much progress.
Back home, sources in Flipkart said Amazon’s current bid might be a hurdle for Walmart, but the Bentonville-headquartered retail giant would be able to cross it. “SoftBank believes Amazon might shell out close to $14 billion for a controlling stake which would skyrocket Flipkart’s valuation to around $22 billion to $25 billion. This would help SoftBank show its investors that it put money in one of the most valued companies in Asia,” said a founder of one of the companies where SoftBank is invested in.SoftBank needs that top dollar valuation to undo the damage done by beleaguered e-commerce player Snapdeal, in which the company put in a billion dollars and has to write off the whole investment after it was unable to pull off its merger with Flipkart last year.