Bengaluru: In October, less than two months after Flipkart had agreed to a $2.5 billion investment deal with SoftBank Group Corp., top executives from the American retail giant Walmart reached out to Flipkart. They wanted to discuss a potential deal.

Walmart had held early talks with Flipkart even in late 2016, but at that time, Flipkart executives weren’t convinced that Walmart was serious about investing in the company.

This time, it was different.

For one, Tiger Global Management partner Lee Fixel, Flipkart’s most influential shareholder and board member, had been in touch with Walmart executives for months before Walmart finally reached out to Flipkart.

Walmart, the modern retail pioneer, is facing an existential threat from the relentless expansion of Amazon in the US. Since launching in 1994, Amazon has looked unstoppable and it is increasingly encroaching on Walmart’s turf. Walmart has made a string of e-commerce acquisitions including Jet.com for $3.3 billion in August 2016. But its online business is still underperforming.

In China, another large retail market, Walmart is a marginal player. It has settled for a minority stake in online retailer JD.com, a smaller rival of Alibaba.

Graphic: Paras Jain/Mint
Graphic: Paras Jain/Mint

It was clear that the Indian retail market was up for grabs—but not potentially for long—and that Flipkart was the best route into the country that bans foreign direct investment in offline retail.

The fear of missing out for Walmart proved to be strong enough to override concerns about slower-than-expected growth of e-commerce in India and Flipkart’s losses.

In October, the retailer invited Flipkart co-founders Sachin Bansal and Binny Bansal to its headquarters in Bentonville, Arkansas, a state that counts former US President Bill Clinton and writer John Grisham as natives.

What surprised Flipkart executives and investors was that a year after Walmart passed up on a minority investment the company, the American retailer was now expressing interest in taking a controlling stake in Flipkart.

Tiger Global’s Fixel was the keenest to do the deal. He had put his career on the line by investing nearly $1 billion into Flipkart, believing that the company would be able to return several multiples of that. But his bet looked in deep trouble in 2016 after several missteps at Flipkart which was losing ground to Amazon. Eventually, Flipkart turned around its business in late 2016 led by Kalyan Krishnamurthy, the former Tiger Global executive brought in by Fixel. In 2017, Flipkart raised nearly $3 billion in two financing rounds at a pre-money valuation of $10.2 billion from SoftBank, Tencent, Microsoft and eBay.

But while Flipkart was saved from immediate disaster, it was clear that Fixel’s dream of a $50-100 billion exit was over. He persuaded other investors including SoftBank to let the company continue talks with Walmart despite Flipkart having more than $3.5 billion in the bank.

In December, top Walmart executives including CEO Doug McMillon, M&A head Emily McNeal and international CEO Judith McKenna visited Flipkart in Bengaluru. They met at a five-star hotel with Flipkart board members and top executives.

As it became clear that Walmart was serious about pursuing a deal, Flipkart hired Goldman Sachs as its investment banker to explore rival offers.

Goldman reached out to Amazon, China’s Alibaba Group and Google Inc. to explore their interest in making a rival offer for Flipkart. Alibaba passed up but Amazon indicated it was interested. Google, too, said that it may make an investment at a valuation of $16 billion but that was considered too low.

Meanwhile, Walmart chairman Greg Penner got involved. For such a big acquisition to pass, Walmart would need the support of its promoters. Penner is the heir to the fortune of the family that founded Walmart. He is the son-in-law of Rob Walton, son of Walmart founder Sam Walton. He convinced the Walton family to back the deal. Given the threat Walmart faces from Amazon, for the Walton family, the deal was more than just about finances; this was as much about safeguarding their legacy. It helped that Penner was friends and a B-school classmate of Kabir Misra, the SoftBank representative on Flipkart’s board.

Amazon founder and CEO Jeff Bezos spoke to Flipkart’s Fixel and SoftBank’s Masayoshi Son about the Flipkart sale. But Fixel was convinced that a Flipkart-Amazon combination would face regulatory hurdles. He brought around the other Flipkart investors to sign off on the sale to Walmart.

In the last three weeks, there was more drama.

Flipkart executive chairman Sachin Bansal, who had been an integral part of the discussions till then, asked for a bigger role after the sale. He also asked for stronger rights in the new entity. But Krishnamurthy, who had been earmarked to continue as Flipkart CEO, opposed Bansal’s demands.

Obviously, Fixel backed Krishnamurthy, leading to the ouster of one of India’s best-known entrepreneurs from the firm he co-founded nearly 11 years ago.

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