A Wal-Mart store Salinas, California, US. Picture: ISTOCK
A Wal-Mart store Salinas, California, US. Picture: ISTOCK

Bangalore — Walmart looks likely to take the next round in the battle for India’s retail market over rival Amazon.

Flipkart Online Services, India’s leading e-commerce company, is leaning towards selling a controlling stake to Walmart, rather than Amazon, because of the greater certainty in such a deal, according to people familiar with the matter. Both US companies are bidding for a controlling stake in Flipkart at a valuation of about $20bn, said the people, asking not to be identified because the matter is private.

Flipkart’s board recently met to discuss the competing proposals and thinks Walmart could close a deal more quickly and smoothly, the people said. Walmart faces fewer regulatory hurdles because it has no online retail presence in the country now, while Amazon is the second-largest e-commerce player and Flipkart’s primary rival. Flipkart founders Sachin and Binny Bansal also favour Walmart because they would continue to help lead the business and the US company’s executives have emphasised their commitment to the market.

A Walmart deal has been discussed since at least last year and could still change or fall apart. SoftBank Group, Flipkart’s largest shareholder, may prefer a sale to Amazon in part because of its success in cracking open the e-commerce business, one of the people said. Amazon founder Jeff Bezos has committed $5.5bn to India and his country chief, Amit Agarwal, has made progress by adapting the site to local conditions.

Walmart, Amazon and Flipkart declined to comment.

Bezos wants to win in India

Walmart is in talks to take a minority stake in Flipkart that could go up to 50% or 60%, said the people. The amount will depend in part on which of Flipkart’s existing shareholders want to sell, including SoftBank and Tiger Global Management. Bloomberg News reported last month that Walmart would likely pay about $7bn for one third of the company.

If completed, the deal would give Walmart a major stake in an emerging market of 1.3-billion people. The US company is the world’s largest retailer, but it has struggled against Amazon as consumers increasingly migrate to online commerce. India is the next big potential prize after the US and China, where foreign retailers have made little progress against Alibaba.

Amazon and Bezos are pushing hard for deal with Flipkart because they realize Walmart’s money will fortify its rival and make competition even more fierce. By contrast, an Amazon deal for Flipkart would consolidate the market and allow Bezos to step up investments in a country still in need of basic infrastructure for faster delivery and high quality goods.

Still, an Amazon deal would be much more complicated than one with Walmart, said one person. Because of regulatory concerns, Amazon would likely have to offer concessions to government authorities, such as continuing to operate the two e-commerce sites as independent brands. Bezos would also have to persuade Flipkart and its board to take a chance on government approval — perhaps by guaranteeing a large break-up fee if the deal fails.

A $20bn price tag would be substantially higher than Flipkart’s valuation of about $12bn last year. It is already the most valuable start-up in India. Tiger and SoftBank are currently the start-up’s largest shareholders, followed by SA’s Naspers. If the deal goes through, it would be the biggest in the nascent history of Indian e-commerce.