INTRODUCTION

Flipkart Private Limited is an Indian e-commerce company established in 2007. It started with a
primary focus on online book sales and soon, expanded to lifestyle products, electronics, home
essentials and groceries. Flipkart was the startup in the e-com industry for selling online goods by
fellows from IIT. Flipkart was funded by many funding giants internationally and it became an
example for successful e-com startup. Walmart is giant in the retail store with multinational presence
and acquired many companies in different regions of the world to operate and grab the market share to
beat the competition. Two players Walmart and Flipkart have their strong position over their
respective places in terms of market capture and sales other side of the coin reflects the investors who
had put their money in the venture like Tiger Global, Softbank etc. the deal become biggest deal due
to strong presence of Amazon in the game. Walmart is the world's largest company by revenue – over
US$500 billion according to Fortune Global 500 list in 2018 – as well as the largest private employer
in the world with 2.3 million employees. It is a publicly traded family-owned business, as the
company is controlled by the Walton family. As per Morgan Stanley, India’s online retail is set to
grow by 1,200% to $200 billion ( 30% CAGR) by 2026 from $15 billion in 2016. Average wages are
rising by 2% annually and internet penetration is also growing as data costs are becoming more
competitive. This makes Indian e-commerce space lucrative.
ABOUT THE DEAL
Flipkart was acquired by Walmart to the tune of 77% for $16 billion kicking the company valuations
to $21 billion. It starts with the size of India — it’s the second-most-populous country in the world,
just behind China. reverse merger, the company bought Walmart's 12-year old business in India which
has expanded to 28 stores and 1.5 million members. The investment includes $2 billion in new equity
funding and Walmart and Flipkart are in talks with additional potential investors who may join the
round. Walmart also said it supports Flipkart’s ambition to transition into a publicly listed, majority-
owned subsidiary in the future. Flipkart marks the biggest e-commerce deal in the world6 . Out of the
$16-billion investment, Walmart will invest $2 billion in cash and purchasing shares worth $14 billion
from existing shareholders of Flipkart. Remaining business of Flipkart will be held by existing
shareholders of the company, who are founder Binny Bansal, Tencent Holding Ltd, Tiger Global
Management ltd and Microsoft Corp.
SYNERGIES
WALMART
1. Cost Synergy -Walmart will be able to take advantage of Flipkart’s existing customers which
are approximately 54 million and sturdy logistics platform
2. Revenue synergy - The Market leadership of Flipkart in fashion wear (through Myntra and
Jabong), along with a varied portfolio of cell phones and appliances will give Walmart with a
well-established market base to sell its own products.
3. Walmart can merge its existing settlement programs with an application run by Flipkart called
PhonePe for effective online purchases and bill payments.
4. FDI norms allow omly 51%in multi brand retail.Walmart see’s online as the only method to
enter the Indian market and for Walmart the best investment option to enter the Indian e-
commerce segment having about 100 million customers is Flipkart.
5. Supply chain arm of Flipkart is the one of the best i.e. e-cart that assists more than 800 cities
and also does 50,00,000 deliveries daily. Flipkart is it owns 40% share in Smart phone market
and 60% share in fashion market (together with its units Jabong and Myntra).
FLIPKART
 1. Flipkart will be able remove its start-up label and will be a part of worldwide enormous
network of Walmart
2. Cost synergy -Flipkart will be able to increase retail expertise of Walmart and its information
of the grocery segment and merchandise supply chain management
3. The availability of new funds will help Flipkart to expand its operations.
4. Flipkart will also get the benefit of Walmart’s direct sourcing from farmers by the way of
reduced cost
VALUATION
One of the factor which is currently being highly used in valuing e-commerce companies is GMV.
GMV or gross revenue in e-commerce terms, means the sale price charged to the clients and
multiplied by the number of items sold. For instance, if a company sells 100 articles at Rs 1,000 each,
the GMV is Rs. 10,0000. The GMV is after that multiplied by multiple (x times) to get the valuation
of the entity. This method is considered to be misleading, unreliable and unstable as it omits the costs
of generating revenue and considers only the total value of goods and services. GMV also ignores
discount, returns/cancellations. Hence thus could explain why Flipkart continues to increase its
valuation even though it is making losses (Flipkart reported a loss of Rs 8771 crore ($1.4 billion in
financial year 2017).
DEAL STRUCTURING PROCESS
1. Acquisition vehicle and Post closing Organization
Indian e-commerce space is turning super lucrative. it is expected to grow with at 30%
CAGR. Flipkart Amazon, Paytm and Snapdeal are the top players in the Industry currently.
And with the Companies like Jio have announced their plans to enter into this industry, the
Walmart’s acquisition of Flipkart gives it the early entrant advantage, helping it in higher
penetration of the market and better awareness among the consumers for the brand. The
Flipkart investment transforms Walmart’s position in a country with over 1.3 billion people,
strong GDP growth, a growing middle class and significant runway for a smartphone, internet
and e-commerce penetration. Walmart is looking to extend its supply chain arm through
partnerships with around 60 lakhs Kirana Stores. This can increase the market presence of
small stores.
ESOPS help by 100 current and former employee of flipkart is now estimated to be worth
more than $1 Million .Walmart offered a 100% buy back of vested shares by flipkart
employees .
2. Forms of payment
The investment is for $16Billion. This is the single largest transaction in the history of
ecommerce sector. Flipkart was valued $12 Billion but after the agreement its valuation has
become $20Billion. out of the total investment $2 Billion will be in new equity while the
other is to acquire stake from existing investor like Softbank, Naspers.
3. Form of acquisition
Walmart has wrapped up Flipkartacquisition for $16 billion (about Rs 1.05 lakh crore) to
purchase a 77% stake in Flipkart. As per the terms of the deal co-founder Sachin banal has to
quit the company, selling his entire stake of 5.5% in Flipkart. Another co-founder Binny
Bansal and CEO Kalyan Krishnamurthy will continue to run Flipkart. Walmart has sold $16
billion bonds.
 4. Legal form of Selling Entity
The financial advisors of Walmart was JP Morgan Securities and for Flipkart was Goldman Sachs%
co . EBay invested around $500 million in Flipkart in 2017, taking a 5 percent stake in the business
and handing over its eBay India operation in the process. The potential obstacle for Walmart is that
the eBay deal still has three years to go and is alleged to cover all types of merchandise excluding
grocery stuffs s As, Walmart approached CCI for seeking approval of its proposed acquisition in
Flipkart, two top traders' bodies, including the CAIT, have moved the fair-trade regulator (CCI)
against the deal as traders across India are afraid that it would lead to a monopoly of few companies
like Walmart due to huge cash reserves at their disposal. They called the deal a nightmare for
domestic retail trade, which would create massive job loss.
5. Accounting and tax consideration
Tax Implication
The taxability aspect of the deal depends on how the deal is structured. Flipkart India is held by its
parent entity Flipkart Singapore, which in turn is held by shareholders like Softbank USA and Tiger
Global, Mauritius. Major assets or the capital assets of the entire transaction is located in India.
According to the terms of the deal, the transaction is expected to be a two-step process. The
first step will be the Singapore entity selling its stake in the Indian entity to Walmart. This will be
done through a direct transfer. In the second step, Flipkart Singapore will provide an exit to the
identified shareholders. This could lead to a buyback or a capital reduction process by using the
money received by it from the sale of share of Flipkart India. The whole transaction can trigger
domestic tax obligations as well as tax treaty issues.
Taxation on Capital Gain
There is a potential capital gains tax for both non-resident & resident investors under following
circumstances. Most of the shares sold to Walmart were of non-resident shareholders, apart from the
resident shareholders. They are transferring their stakes in Flipkart Singapore that owns an Indian
company to Walmart which is a non-resident US based company.
Resident Investor
Sachin Bansal and Binny Bansal who are also proposing to sell their stake would be liable to pay long
term capital gain tax @ 20% if shares have been held by them for more than 2 years.