Dive Brief:

• Walmart on Wednesday announced that it has signed definitive agreements to become Flipkart’s largest shareholder, paying $16 billion for an initial stake of approximately 77%.
• The remainder of the business will be held by some of Flipkart’s existing shareholders, including Flipkart co-founder Binny Bansal, Tencent Holdings Limited, Tiger Global Management LLC and Microsoft Corp., according to a Walmart press release.
• The deal is subject to regulatory approval in India, Walmart said.

Dive Insight:

Walmart’s challenge to Amazon in the U.S. is on something of a rocky road, but its Flipkart deal will give the retail giant solid footing in India.

"India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market," Walmart CEO Doug McMillon said in a statement.

India is the top developing country for retail investment, on the strength of a growing economy and middle class, and a favorable regulatory environment, according to A.T. Kearney's Global Retail Development Index last year —  outpacing even China.

While Walmart and Flipkart will be working closely together and combining their strengths, they will maintain distinct brands and operating structures, Walmart said in its release. That could help ease concerns by Indian regulators. New guidelines from the Indian government last year are designed to boost Indian e-commerce businesses, encouraging foreign investment but not foreign ownership and operation. 

Walmart does have operations in 19 cities across nine states in the country; Walmart India operates 21 Best Price cash-and-carry stores and one fulfillment center, with more than 95% local sourcing. Walmart India president and chief executive officer Krish Iyer will continue to lead that part of the business, according to a press release.

The U.S. retailer is shelling out a significant investment in the deal, but its deep pockets make that pretty easy. "The overall impact on Walmart’s credit profile is relatively benign as it has built some cushion over the past few years, and we expect the company to follow past practice and utilize share repurchases as the lever when necessary to largely maintain its quantitative profile over the next 2-3 years," Moody's Investors Service Lead Retail Analyst Charlie O’Shea said in comments emailed to Retail Dive.

While Flipkart has enjoyed primacy as India's homegrown retailer — going head to head with Amazon's own growing operations there — it's struggled to maintain profitability, despite a series of investments from abroad. Walmart's takeover will help in that area, boosting Flipkart and giving Amazon a run for its money. And it's a good shift in focus by Walmart from its faltering U.K. operations.

“As Flipkart is expected to generate meaningful losses for at least the next few years, this is clearly an investment for the future, and when viewed in tandem with the recently-announced sale of a majority stake in Asda, is indicative of Walmart’s long-standing strategy of shifting resources into higher growth potential markets and segments when opportune,” O'Shea said. “We view Walmart’s announcement that it is acquiring around 77% of India-based online retailer Flipkart for around $16 billion favorably as it provides Walmart with immediate scale in the burgeoning Indian e-commerce arena.”