Also, Flipkart's largest shareholder, SoftBank, may be considering ways to sell its stake in online retailer Flipkart without attracting a huge tax liability. Amazon is now the #2 e-commerce platform in India behind Flipkart and sources told Bloomberg that Flipkart's board anticipate regulators will be more likely to approve a deal with the lesser competitor, Walmart. Walmart is the potential beneficiary of Flipkart shares' deal. This will mean that Walmart has beaten Amazon to the finish line following the latter's attempts to acquire a controlling interest in Flipkart.
"The buyback and the subsequent conversion to private company status appear to be part of a series of steps aimed at easing a proposed acquisition by Walmart", Chennai-based Durai said.
If the deal proceeds Walmart will now have a headstart in a lucrative market with a population of approximately 1.3 billion people.
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SoftBank still hasn't decided how much of its 20-21% holding in Flipkart it will sell and when. Citing figures from the India Brand Equity Foundation, Zacks reported that the Indian e-commerce market is project to grow from $38.5 billion last year to more than $50 billion this year, reaching $200 billion by 2026. This will help Flipkart to outdo them in Indian market.
Walmart initiated the deal from past year but it is still facing threats from Amazon. Amazon already is the No. 2 online retail player in India, and regulators might frown on a combination with Flipkart - a situation that may have swayed Flipkart's board in the direction of a deal with Walmart. Walmart now shifted its marketing strategy to tap opportunities in the Indian market. "As per Section 9 (1) of The Income Tax Act if the value of the Indian assets is more than 50 per cent of the global assets, the shares will be deemed as Indian shares and gains if any will be liable to tax in India", Abhishek Goenka, partner & leader, corporate & worldwide tax at PwC told the newspaper. The agreement would leave Walmart with a 42% share of the combined business, and gave them $10 billion to play with, which the company seems to be turning around quite quickly.
Amazon also made attempts to have the Walmart-Flipkart transaction derailed since its success will fortify Flipkart.