Is Walmart chasing a mirage in Flipkart with the $16-billion acquisition?

Softbank May Invest Whopping $3 Bn in Paytm Mall, Thanks To Flipkart

Softbank May Invest Whopping $3 Bn in Paytm Mall, Thanks To Flipkart

When Walmart announced last week that it would buy a 77% stake in Flipkart, there was no question that it included Soft-Bank's 22.3%.

Bengaluru-based Flipkart had scooped up a staggering $2.5 billion round in August past year.

According to an ET report, a person familiar with Walmart's plans said, "SoftBank can continue as any other investor as it is neither a retailer nor a direct competitor that would give rise to any conflict of interest". SoftBank is the largest shareholder in Snapdeal, which was locked in an intense battle with Amazon India and Flipkart.

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The reason for this potential flip-flop is being attributed to a hefty tax burden that a short-term exit from Flipkart will attract for Softbank.

But the talks with Paytm Mall would proceed only if SoftBank make exit from Flipkart.

Japanese internet behemoth Softbank is in discussions to pour in around $3 billion in Paytm Mall. Now with Walmart as an investor, Flipkart will be able to leverage the United States 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. The report further mentioned that the Japanese conglomerate could be freed from a restriction in its pact with the Bengaluru-based online retail titan that limits it from investing more than $500 million in Paytm Mall until 2020, one of them told the financial daily. While it has pumped in close to $2 billion into Indian startups like Snapdeal, Ola and Housing.com in last few years, it has also written off a significant portion of that on account of loss in valuation.

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Worth mentioning here is that SoftBank in April had made a decision to invest Dollars 400 million (about Rs 2,600 crore) for a 21 per cent stake in Paytm Mall. "Walmart will have the majority with or without SoftBank".

Walmart has already revealed plans for an initial public offering (IPO) for Flipkart, within four years of the completion of this acquisition. Moodys said it expects the deal to initially weaken Walmarts credit metrics, with retained cash flow (RCF) to net debt ratio likely dropping to the low-30 per cent range from 40 per cent now and debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio likely to double from 1.6 times now.

Is Walmart chasing a mirage by acquiring Flipkart at a total valuation of almost $21 billion? As part of the agreement, Walmart will purchase new shares of Flipkart worth $2 billion and buy a stake worth $14 billion from the firm's existing investors.

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In the Walmart-Flipkart deal, the revenue department will go through the share purchase agreement to ascertain the objective of investment and the emanating gains.

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