While Walmart was earlier believed to be the front-runner to buy a controlling stake and take over Indian e-commerce player Flipkart, the latest reports might change that idea. According to a report by CNBC TV18, Amazon has made a formal offer to buy a 60% stake in Flipkart at a price which is believed to be similar to Walmart‘s offer – around $12 billion.
It has been suggested that Amazon was looking to make an offer itself in order to prevent the entry of Walmart into the Indian e-commerce market, but this appears to be the first firm report that the American e-commerce major has actually done so. Amazon’s offer includes a break-up fee of about $2 billion, which is to be paid in case the deal does not go through for whatever reasons. This is a protective measure intended to give the sellers confidence when proceeding with a deal, since the buyer has that much more at stake in completing the takeover.
It also appears that Amazon is seeking a non-compete clause with Flipkart’s founders through the deal. Flipkart is currently the biggest competitor to Amazon India in the booming e-commerce space in India, and together, the two companies control over 80 percent of the e-commerce market in the country. However, an Amazon takeover would raise concerns over anti-competitiveness and monopolistic practices in the e-commerce industry, as the combined entity would no longer be concerned with competing against each other and would control almost the entirety of the e-commerce market.
It is believed that the majority of Flipkart’s stakeholders – including Tiger Global (which controls 20% of Flipkart), Naspers (14 percent stake) and the founders Sachin Bansal and Binny Bansal – would prefer to sell to Walmart, primarily because such a deal would face regulatory hurdles.
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Softbank, which controls 25 percent of Flipkart, has apprehensions about selling to Walmart and has been encouraging the Amazon offer. Tiger Global, Naspers and other small investors would receive full exits from Flipkart with the Walmart deal, while Softbank would sell a large part of its 25% stake, but continue to hold a small stake in Flipkart even after the sale. Walmart or Amazon would gain a controlling stake in Flipkart post any deal.