Post Flipkart transaction, here is how Walmart may suffer; all details here
For Amazon things are going to change now for the worse. It was facing stiff competition from Flipkart as it is and now, the Indian e-retailer will be backed by US retail giant Walmart.
History has been made in the e-commerce market globally, as America’s largest offline retailer Walmart has acquired Flipkart for approximately $16 billion. This investment will help accelerate Flipkart's customer-focused mission to transform e-commerce in India through technology and underscores Walmart’s commitment to sustained job creation and investment in India, one of the largest and fastest-growing economies in the world.
With this, Walmart will hold a whopping 77% in Flipkart.
Doug McMillon, Walmart’s president and chief executive officer said, " We are confident this group will provide Flipkart with enhanced strategic and competitive advantage. Our investment will benefit India providing quality, affordable goods for customers, while creating new skilled jobs and fresh opportunities for small suppliers, farmers and women entrepreneurs.”
For Amazon things are going to change now for the worse. It was facing stiff competition from Flipkart as it is and now, the Indian e-retailer will be backed by US retail giant Walmart. In fact, the reason behind Walmart’s Flipkart takeover can be linked to taking the rivalry with Amazon in the US to India. In the US, Walmart has suffered hugely at Amazon's hands.
And to strengthen it’s foothold in retail chain market, Walmart is going all the way even if it means suffering few losses.
According to Walmart, if the transaction were to close at the end of the second quarter of this fiscal year, the company expects a negative impact to FY19 EPS of approximately $0.25 to $0.30, which includes incremental interest expense related to the investment.
According to its statement, "In FY20, as we look to accelerate growth in this important market, Walmart anticipates an EPS headwind in total of around $0.60 per share. "
Further, Walmart said, “Operating losses of approximately $0.40 to $0.45 per share, assuming minimal tax benefit for losses in the near to mid-term. This amount includes about $0.05 per share related to amortization of intangible assets and depreciation of short lived assets resulting from purchase accounting, which will only last for a few years post-closing.”
Interest expense would become approximately $0.15 per share post-transactions.
Walmart said, “Given the company’s financial strength, we anticipate the continuation of our current share buyback program while maintaining our strong credit profile.”
J.P. Morgan Securities LLC is acting as the lead financial advisor for Walmart, along with Barclays, with Hogan Lovells, Shardul Amarchand Mangaldas & Co. and Gibson, Dunn & Crutcher LLP as outside counsel to the company.