Walmart loses $10 billion market cap after Flipkart buyout
Investor sentiment turns sour as Walmart forecasts operating losses as a result of Flipkart deal
Bengaluru: Walmart’s investors reacted negatively to the news of the retail giant’s buyout of Flipkart on Wednesday, as over $10 billion worth of Walmart’s market value was wiped away, as investors punished the stock in early morning trading on the New York Stock Exchange (NYSE).
As of 8.45pm in India, Walmart shares were trading down 4.04% from the previous day’s close.
The US-based retailer’s market capitalization had dropped to $242.9 billion.
On the other hand, Amazon.com Inc.’s shares had risen marginally, and the stock was up 0.2% as of 8.45pm. The market capitalization of Walmart’s arch-rival in the US currently stood at $774.18 billion, more than triple that of Walmart.
Earlier on Wednesday, Walmart said it had agreed to buy 77% of Flipkart for $16 billion, valuing India’s largest e-commerce firm at roughly $21 billion. Walmart, however, added that it expected operating losses as a result of the deal, along with a negative impact to its earnings per share.
“If the transaction were to close at the end of the second quarter of this fiscal year, Walmart expects a negative impact to FY19 (fiscal year 2019) EPS (earnings per share) of approximately $0.25 to $0.30, which includes incremental interest expense related to the investment,” Walmart had said in a statement.
“In FY20, as we look to accelerate growth in this important market, Walmart anticipates an EPS headwind in total of around $0.60 per share, comprised of: 1) Operating losses of approximately $0.40 to $0.45 per share, assuming minimal tax benefit for losses in the near to mid-term. This amount includes about $0.05 per share related to amortization of intangible assets and depreciation of short-lived assets resulting from purchase accounting, which will only last for a few years post-closing. 2) Interest expense of approximately $0.15 per share,” Walmart added.
Flipkart was valued at a little over $11 billion after raising a mammoth round of roughly $3 billion from the likes of SoftBank, Tencent, Microsoft and eBay.
S&P lowered Walmart’s outlook to negative from stable, citing increasing leverage and risks stemming from the company’s spending to expand online and globally as it continues its share buyback program. The credit firm rates Walmart AA, the third-highest investment grade.
Bloomberg contributed to this story.