Walmart is entering the Indian online market by paying $16bn (£11.8bn) for a majority stake in one of the country’s leading web-based retailers.
Walmart will buy a 77% stake in Flipkart, the US retailer’s largest-ever acquisition, as it attempts to shore up its international online sales ambitions against the likes of Amazon.
The US giant’s Indian stake outstrips the $10.8bn (then £6.7bn) price it paid for Asda in 1999, and comes weeks after it announced plans to pull out of the UK and sell the supermarket chain to Sainsbury’s.
Walmart chief executive Doug McMillon said the purchase is about “setting the company up for growth and profits in the future.”
Shares of Walmart fell 4% in early trading as the company warned the deal would lower earnings.
The retailer expects the transaction to hurt fiscal 2019 earnings per share by 25 cents to 30 cents if the deal goes through before the end of the second quarter.
“We will not know for five to 10 years whether this transaction is successful strategically or financially,” said Steven Roorda, portfolio manager with Minnesota-based Stonebridge Capital Advisors.
“Walmart has a very poor track record operating outside North America.”
India is seen as one of the world’s key growth markets. Increasingly, its population of 1.25 billion is buying goods through mobile devices, and Walmart hopes to capitalise on that trend.
Analysts forecast India’s online retail industry to hit $73bn (£53.7bn) a year by 2022, and predict growth to $200bn (£147bn) a year within a decade, as the country’s middle class customer base grows and smartphone penetration increases.
The deal opens a new front in Walmart’s battle with Amazon, which had expressed interest in a competing offer for a stake in Flipkart.
Amazon now holds about 27% of India’s burgeoning e-commerce market, according to Euromonitor.
Walmart has 21 wholesale cash-and-carry stores across India, having failed in previous attempts to enter the country’s retail marketplace.
The US giant will now gain access to Flipkart’s local market knowledge and technological innovation with this stake. Having fought off an onslaught by US e-commerce giant Amazon, Flipkart has also been buying up much of its own local competition.
Walmart said it plans to fund the deal through newly issued debt and cash.
Its investment will include $2bn (£1.5bn) of new equity funding and the company said it remains in talks with other potential investors to join the funding round but plans to continue to retain majority control of Flipkart.
Reuters previously reported Google-parent Alphabet may buy a roughly 15% stake in Flipkart for $3bn (£2.2bn).