Amazon’s offer to Flipkart: A 60 per cent stake, full merger with its Indian arm and a non-compete clause

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MAY 2, 2018

Despite media reports claiming that the Flipkart-Walmart deal is in its last leg, arch rival-turned-suitor Amazon is showing no signs of exiting the stage. In fact, sources told CNBC TV18 that the global e-commerce giant has now made a formal offer to Flipkart to buy a 60 per cent stake.

The report added that the deal offered by the Jeff Bezos-run company proposed to merge Flipkart entirely with its Indian arm and sought a non-compete agreement with Flipkart’s founders for 1-2 years. While the financial contours of this new deal on the table are broadly expected to match the Walmart proposal, Amazon is reportedly also offering a breakup fee of $2 billion to underscore its interest. This fee, also called a termination fee, comes into effect if the deal falls through halfway into negotiations.

But regulatory hassles may put a stop to Amazon’s plans. Any Flipkart-Amazon deal is likely to come under the scanner of the competition watchdog given the dominant market share these two entities have grabbed in the ecommerce space – around 70 per cent collectively. So Flipkart’s investors will likely think twice about any such offer.

Indeed, the report added that Flipkart’s co-founders as well as its investors, including Tiger Global, are in favour of the deal with Walmart. The buzz around this deal only got louder recently, with SoftBank’s CEO, Masayoshi Son, reportedly meeting Walmart’s CEO Doug McMillon to discuss the deal late last month.

The US brick-and-mortar behemoth is expected to pump in over $12 billion in Flipkart for a majority stake in the company and this investment is likely to value the Indian unicorn at $18-20 billion. Its entry could also significantly shake up things for Flipkart’s board. The buzz is that the American company could bag four of the 10 seats on the board but the top management is not expected to change.


Courtesy/Source: Business Today

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