Walmart shares dropped as much as 4.3 percent after the retailing giant agreed to shell out$16 billion for a controlling stake in Flipkart, an online retailer in India.
The Bentonville, Ark., retailer warned the deal — its largest overseas acquisition ever — will dent its earnings in the current fiscal year by 25 to 30 cents a share if it closes by the end of the second quarter.
“As Flipkart is expected to generate meaningful losses for at least the next few years, this is clearly an investment for the future,” said Moody’s lead retail analyst Charlie O’Shea in an email, adding it is indicative of Walmart’s long-standing strategy of shifting resources into higher potential markets and segments when opportune.
Walmart’s stock, which fell as low as 82.13 on the news Wednesday, were recently off 3.8 percent at $82.50.
Buying a stake in Flipkart, which sells everything from soaps to smartphones and from books to clothes, gives Walmart access to India’s vast e-commerce market that could potentially be worth an annual $200 billion in a decade, according to Morgan Stanley.
Walmart is buying roughly 77 percent stake in Flipkart after almost two years of on and off talks as it looks to boost market share against Amazon, which also expressed interest in making a competing offer for a stake.
“India is one of the most attractive retail markets in the world, given its size and growth rate,” Doug McMillon, Walmart’s chief executive, said in a statement Wednesday.
Walmart said it plans to fund the deal through a combination of newly issued debt and cash on hand.
Its investment will include $2 billion of new equity funding, and the company said it remains in talks with other potential investors to join the funding round, Walmart said.
A new investor joining could lower Walmart’s stake, but the company plans to continue to retain majority control of Flipkart, it added.
Reuters has previously reported Google-parent Alphabet may buy a roughly 15 percent stake in the company for $3 billion.
The remainder of the business will be held by some of Flipkart’s existing shareholders, including Flipkart co-founder Binny Bansal, China’s Tencent Holdings, Tiger Global Management and Microsoft, the company said.
