Walmart Makes a Bet on E-Commerce in India

In this segment from the MarketFoolery podcast, host Chris Hill and senior advisor Bill Mann discuss Walmart's (WMT 0.57%) reported move to buy a majority stake in Flipkart, a leader in the nascent Indian e-commerce market. The retail titan is said to be paying $10 billion to $12 billion. The Fools think Walmart's success with its acquisition of Jet.com bodes well for this deal.

A full transcript follows the video.

This video was recorded on April 12, 2018.

Chris Hill: This is a story, if this goes through, this is going to be one of your big stories, certainly for the first half of 2018. Reuters is reporting that Walmart working on a deal to buy a majority stake in Flipkart. Flipkart is the leading e-commerce company in India. The numbers being reported here are that Walmart would shell out somewhere between $10-12 billion to get a 51% stake in Flipkart. This dwarfs the Jet.com acquisition that they made. Do you like this move?

Bill Mann: I do, actually. There's a model for this, by the way. The same thing that's happening in India, a lot of the characteristics for the Indian online market, you see in China. China is several years ahead. A wonderful company there called Jd.com, and they have managed, really, to keep Amazon out. The winners, and I think the deal is done in China, will not include Amazon.com. And India is another very logical market with some of the same characteristics. And Flipkart, so far, has been the winner. Now, it's several years behind where China is. So, if Walmart is going to become a player anywhere in the world, they have to go into a place where there's a huge amount of flux. And because of a lot of the dynamics in India, very few big cities, a whole lot of smaller cities, a whole lot of villages, it's a really, really good market for online retail to change how commerce is done.

Hill: And I think when you look at what Walmart has done so far with Jet.com, because at the time of that acquisition, it was one of those things that you could just look at and think, "This makes sense on paper, I'm not entirely sure how they're going to bring Jet.com into the Walmart ecosystem. This seems like a smart deal, they need to make it work." I think, to this point, they've proven that they have made the Jet.com acquisition work quite well.

Mann: It's been fabulous.

Hill: So, I think that seems to bode well for this move with Flipkart, which if the reporting from Reuters is accurate, it looks like this deal might close as soon as June.

Mann: Yeah. I mean, it's India, and having had a great deal of professional experience in India, I can tell you that things tend to not happen as quickly as possible, as it seems like they should. You can almost guarantee that there will be regulatory hiccups along the way, in terms of a transaction of this size getting done, because this is a very important company in India. They have really big not only Indian investors, but they also have plenty of foreign money backing them as well now. So, I think it's a really big, important transaction for Walmart.

Hill: I'm glad you mentioned the foreign money that's in there so far. SoftBank from Japan owns about a fifth of Flipkart right now. Does that help Walmart? Does that hurt? Or is it neither?

Mann: It's a good partner to have. The more interesting current holder in Flipkart, to me, is Naspers. A lot of Americans don't know Naspers.

Hill: I'm one of them. [laughs]

Mann: OK, that's great. Let me tell you. Naspers may be the best investors on earth. In 2001, for $32 million, they bought a 33% stake in a little Chinese company called Tencent. That stake today --

Hill: How'd that work out?

Mann: -- $32 million, it's worth $155 billion now. They just sold a teeny bit of it for about $10 billion. Naspers itself, they have a $158 billion stake -- I just said $155 billion a second ago. Let's give them a couple of more billion.

Hill: In the time we've been talking.

Mann: Exactly, it could have moved. This happens. And Naspers itself is valued at about $112 billion. So, you can buy Naspers, and they're assuming that Flipkart, its television, its newspapers -- there's actually a newspaper company, maybe the most successful newspaper company on Earth, but, yeah. So, they have a piece of Flipkart. They have said they're not going to be selling any portion of theirs. Really, really good investor base for Walmart to be partnering with.