Walmart-Flipkart deal will take longer to close due to a possible delay in fundraising

  • The completion date for the deal has been shifted from March to June 2019.
  • In doing so, the US retail giant is giving itself more time to raise the $16 billion worth of funds required for the purchase to go through.
  • Walmart is financing the deal through a large bond sale, but this might be harder than expected due to investor skepticism.
Walmart is postponing the completion date for its acquisition of the 77% stake in Indian e-commerce upstart Flipkart to 7 June 2019. This is around three months after the original deadline that was set for 9 March, as stipulated in the share purchase agreement.

In doing so, the US retail giant is giving itself more time to raise the $16 billion worth of funds required for the purchase to go through. It is financing the deal through the issue of a nine-tiered bond offering in the US. If it isn’t able to raise the full amount by June, the deal could be in danger of falling apart.
The company, however, still maintains that the deal could close by the end of 2018 if the bond issue proves extremely successful. This scenario is unlikely, however, given the level of skepticism regarding the deal on Wall Street, Walmart is provisioning for a longer funding schedule.

In May, a report on S&P Global Ratings, a credit rating agency, referred to the acquisition as Walmart’s “second pricey deal for an unprofitable e-commerce startup” following the purchase of for $3.3 billion in August 2016. The agency lowered its outlook for Walmart from “neutral” to “negative”, given its decision to partly fund the deal with debt.
A number of analysts cited tremendous costs associated with growing an e-commerce company, something that Walmart has no track record of achieving successfully, as well as the competition posed by Amazon in India. It was predicted that the deal would result in significant losses in the short term for Walmart.

Opposition to the deal

A lack of demand for the bond offering isn’t the only potential problem that Walmart has to deal with in the near term. It has to a get a spate of regulatory approvals in India, including a go-ahead from the Competition Commission.

Regulatory authorities will have to take into consideration any possible threats to the livelihoods of business owners and competition in the industry as a result of the deal. Walmart and Flipkart have consistently said that their combined entity will not be a consumer-facing retailer as much as a business-to-business seller, given Walmart’s lack of presence in the direct retail market in India.
Around one million traders and small business owners are planning to hold a nationwide protest against the deal today, citing Walmart’s habit of deep discounting, undercutting suppliers as well as sourcing goods from outside the country.

The body organising the protest, the Confederation of All India Traders (CAIT), has also stated that it could challenge the deal in court if it gets regulatory approval. Apart from the deal being cancelled, the CAIT’s major request is for the government to formulate a national e-commerce policy, which will provide for the establishment of an exclusive regulator for the industry.
Given that it is an election year, the Modi administration will have to tread lightly. On one hand, it has to prove its business-friendly credentials, but on the other, it has to show that it cares about the needs of traders and owners of small businesses.