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Walmart makes a $16 billion bet on India’s booming economy

Walmart makes a $16 billion bet on India’s booming economy

May 10th, 2018 in Business

A bird flies over the Flipkart headquarters in Bangalore, India, Wednesday, May 9, 2018. Walmart is paying $16 billion for a controlling stake in India's giant online retailer Flipkart, breaking into a fast-growing economy where it has struggled to establish a foothold. (AP Photo/Aijaz Rahi)

NEW YORK (AP) — Walmart will soon reach shoppers in India’s massive consumer market directly, as it takes control of the online retailer Flipkart that’s known for its ubiquitous delivery drivers on motorcycles with oversized backpacks.

The $16 billion controlling stake, announced Wednesday, is the largest acquisition yet by the world’s largest retailer.

India’s hot economy makes it attractive to companies eager to sell goods to its massive population. Walmart and Amazon have pushed hard to catch up to Flipkart and to establish a substantial foothold in the country.

However, instead of competing with Flipkart, Walmart has essentially taken over the company. It’s a move that might have near-term losses but is part of a larger shift by Walmart to look toward the future. That includes its decision last month to sell its British unit, Asda, which primarily operated a chain of traditional supermarkets. Amazon, which operates an online marketplace in India, was reportedly in talks with Flipkart as well — but Walmart won it.

Flipkart had net sales of $4.6 billion in its latest fiscal year. That’s a fraction of Walmart’s latest annual revenue of $485.8 billion. However, Walmart believes India, which has 1.3 billion people, could be among the world’s top five e-commerce markets within the next five years.

“We are actively working to shape the portfolio of geographies and businesses we’re in, in order to set the company up for success for another generation,” Walmart CEO Doug McMillon said in a conference call Wednesday.

Shares of Walmart Inc. dropped more than 3 percent Wednesday as investors worried about the investment hurting profits.

The Flipkart purchase gives Walmart far more influence in India — politically and economically — and positions it to shift quicker into retail outlets if the regulatory landscape changes.

Walmart will own about 77 percent of Flipkart, with the rest held by some existing shareholders, including co-founder Binny Bansal, Tencent Holdings, Tiger Global Management and Microsoft Corp.