Massive setback to Flipkart-Walmart $16 bn pact; will it kill the deal?

Walmart has bought 77 per cent of Flipkart in a deal valued at $16 bn and yet, today a deal killer has emerged on the horizon! It has so transpired that Japan's SoftBank Group Corp has reportedly not yet decided to sell its 20-22 per cent stake in Flipkart to US retailer Walmart Inc. This was revealed by sources with direct knowledge of the development. SoftBank's Masayoshi Son will take a call in the next 7-10 days on whether to exit India's biggest online retailer or say invested for some more time, they added. Notably, Masayoshi Son was the first to reveal that Flipkart and Walmart had inked a deal to purchase the Indian e-retailer! This was reportedly even before Walmart had made the announcement.

In order to buy 77 per cent stake in Flipkart, Walmart on Wednesday had announced that it will pay about USD 16 billion. As per the statement issued by the US retailer, Flipkart co-founder Binny Bansal, Tencent Holdings Ltd, Tiger Global Management LLC and Microsoft Corp would hold the remaining 23 per cent stake in Flipkart. Significantly, it also said that SoftBank had agreed to sell its 20-22 per cent stake.

Now it emerges that SoftBank is yet to take a call on exiting Flipkart. If in case SoftBank decides not to sell its stake in Flipkart then Walmart would be left with around 55 per cent share in Flipkart. This would definitely not be to the US retailer's liking.

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SoftBank had invested $2.5 billion in Flipkart last year, and now its exit from the company would likely to fetch it up to $4.5 billion. The $2 billion profit earned would be taxed as per Indian law. This is one of the main reasons that may hold SoftBank from selling its stake in Flipkart.

The profits that were made from the shares were held for more than two years. Now this would attract long-term capital gains tax of 20 per cent plus surcharge and education cess, effectively wiping away a fourth of the profit.

Another deciding factor of whether SoftBank would sell its stake in Flipkart will also depend on Masayoshi Son's relationship with Walmart. Rumors are also there that now, SoftBank wants to be a long-term investor in India as the conglomerate is very bullish on the country. The company sees immense opportunities and growth possibilities in the country.