Amazon makes formal offer to buy 60% stake in Flipkart

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The battle to buy India’s largest e-commerce giant Flipkart has gotten a little more intense with Amazon making a formal offer to acquire 60% stake in the company. Sources indicate that the deal is likely to match Walmart’s projected bidding of $12 billion for 60% stake. Walmart, Amazon’s rival in this deal, is yet to make a formal offer.

Flipkart

The offer values Flipkart at $20 billion, which is significantly higher than Flipkart’s current valuation of $12 billion. According to sources, Amazon is seeking a non-compete agreement before proceeding with the deal. Moreover, Amazon is offering a breakup fee of $2 billion if the deal does not materialise.

Despite the formal offer by Amazon, reports indicate that Walmart still continues to be the frontrunner when it comes to acquiring majority stakes in Flipkart. Some of the company’s majority shareholders including Tiger Global and Naspers are reportedly in favour of Walmart over Amazon. The company’s founders Sachin and Binny Bansal have also reportedly decided to go with Walmart.

A report by Bloomberg stated last month that Flipkart’s board of directors discussed both the deals and decided to side with Walmart. Though Amazon could match the offer by Walmart, it is expected that the deal with Amazon could run into regulatory constraints. The board reportedly made the decision since the Walmart deal is likely to close smoothly.

Amazon is planning a major expansion in India this year with the company’s boss Jeff Bezos announcing a $5.5 billion investment in Indian business operations.

Ecommerce in India is expected to grow manifold in the upcoming years. With the advent of smartphones and 4G internet, even Tier 2 and Tier 3 cities across the country are expected to contribute to the growth of the ecommerce industry.

According to a report by India Brand Equity Foundation, Indian ecommerce market is likely to hit $200 billion in the year 2026 from its current value of $38.5 billion in 2017. With the industry on the growth path, companies are likely to compete with each other more intensively in order to gain market share. Unless it runs into regulatory hurdles, a deal between Flipkart and Amazon is likely to consolidate 80% of the online retail marketplace in the country.

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