Flipkart-Walmart Deal: Is SoftBank reviewing decision to sell stake?

BENGALURU: On Wednesday, when Walmart Inc announced the acquisition of a 77% stake in Flipkart, there wasn't the slightest question mark over the exit of SoftBank - the biggest shareholder with 22.3% - from India's most valuable start-up.

But in the 24 hours since, questions have emerged over whether SoftBank has indeed sold out, or if it's still in the process of making up its mind.

If the Japanese conglomerate is sitting on the fence, then the big question is: Is Walmart's stake in Flipkart 77% -- as announced to the world -- or 55%, still a comfortable majority, but not a three-fourths majority.

Neither Walmart nor Softbank was available for an official response to TOI's queries. A person close to the development said SoftBank would take a final call in the next 7-10 days. The person said that while Softbank supported the American retail giant's acquisition of a controlling stake, the deal had "come together quickly" and the Masayoshi Son-led investor was still in discussions with Walmart to "determine its role in Flipkart going forward".

SoftBank’s Vision Fund had taken a 22% stake in Flipkart in August 2017. Though SoftBank's founder and CEO Son had inadvertently announced - even before the deal was officially unveiled by Walmart and Flipkart - that the fund had exited the Indian company, sources told TOI that within Softbank itself there was a last-minute debate over whether to put its sale on hold. The fund’s $2.5 billion investment in Flipkart would fetch $4 billion if fully sold - representing an annualised return of 75%.

If SoftBank is indeed taking a closer look at whether to exit at this point of time, it could be because of the tax implications of a sale. Short-term capital gains tax applies if the sale happens within 24 months of purchase.

On Wednesday, a Walmart press release had said that subject to regulatory approvals in India, it would pay about $16 billion for an initial stake of approximately 77% in Flipkart. This was confirmed in a conference call addressed by Walmart CEO Doug Macmillon and other senior company executives on Wednesday.

As TOI reported in its May 3 edition, SoftBank was in favour of Amazon taking a majority stake in Flipkart but the rest of the board had expressed its preference for Walmart.

There is also a view that SoftBank may not want to antagonise Walmart by exiting immediately, especially since it had thrown its weight behind Amazon.

On Wednesday, all significant shareholders in Flipkart like South Africa’s Naspers, venture fund Accel Partners and eBay had confirmed they were selling their shares to Walmart.

The change in SoftBank’s position is in contrast to the statement Son made in Tokyo to investors and journalists after his company’s earnings call on Wednesday.

A Bloomberg report quoting Son, said “I think we announced it (exit from Flipkart) last night. If not, well then that means I’m just spouting this out. In any case, it’s been decided.”