Finlatics IBEP project 4

SoftBank & Flipkart

For the last module i.e., the case-study based project, I have chosen to write about
the case of SoftBank Group Corp selling its entire stake in Indian online retailer
Flipkart to US-based Walmart Inc. SoftBank occupied around 21% stake in Flipkart.
SoftBank invested around $2.5 billion in Flipkart via its vision fund and was
expected to make around $4 billion on the investment. SoftBank vision fund invested
the $2.5 billion in Flipkart after an unsuccessful attempt at a merger with rival online
retailer Snapdeal. The Japanese investor best known for backing China’s Alibaba was
once the biggest investor in India’s largest online retail company which was battling
US Amazon in one of the most globally competitive markets
SoftBank had pumped in over $6 billion into Indian companies, including Flipkart.
Grofers, Ola, OYO and Paytm are a part of its portfolio in India. SoftBank was
successful in exiting the company with a positive return in a short time period. As
mentioned earlier, they sold their stake to Walmart Inc, which agreed to purchase
around 77% of Flipkart for $16 billion. This accounted for a valuation of about $21
billion. This sale marked the exit of SoftBank from its $93 billion Vision Fund. This
was a relatively speedy exit for a PE fund which usually remains invested in a
portfolio company for over six to seven years. SoftBank sold its stake for $4 billion,
earning $1.5 billion in profit. One of the requirements of the exit was a steep 43%
short term capital gains tax payment by the Japanese investor, for which the PE fund
had kept aside $648 million. Seeing as SoftBank decided to exit Flipkart within a
year, the Compounded Annual Growth Rate for it is as follows-
CAGR= (End Value/Start Value)^1/n-(1)
=(1500,000,000/2500,000,000)^1/1-(1)
= -40.0%
The CAGR is negative as the ending value is lower than the beginning value.
At present, SoftBank does not hold any stake in Flipkart but in June 2021 it came to
be known that SoftBank group Corp was in talks with Flipkart for investing $ 700
million in the internet retailer, almost three years after it sold its entire stake in the
company to Walmart Inc. The proposed investment in Flipkart from SoftBank’s
vision fund 2 was a part of a $1.2-$1.5 billion funding round. This transaction was
expected to put Flipkart at a value of $28-30 billion. After the funding, the E-
commerce firm was valued at $37.6 billion. The fundraise came about in the midst of
Flipkart prospecting over going public in the United States and intending for a
valuation of up to $50 billion. This funding values the company at just about double
the rate it had earlier. The funding also attracted investments from sovereign funds
DistruptAD, Qatar Investment Authority, Khazanah Nasional Berhad and private
equity firm Blackstone Group