The Competition Commission of India (CCI) approves the long-awaited Walmart Flipkart deal. The deal announced months back in May, overcomes a key obstacle. Three months after the US-based company announced its acquisition plan, it finally gets the official approval to complete its acquisition worth $16 billion. As Walmart claims 77% stakes of Flipkart, this transaction is set to be the biggest business deal in the country’s corporate history.
All mergers and acquisitions in India which range above a certain threshold have to be approved by CCI. Despite nationwide protests from traders, India’s antitrust regulator has approved the deal. Wednesday evening witnessed a post from Competition Commission of India’s official Twitter handle declaring this momentous event, “CCI India approves proposed acquisition of Flipkart Private Limited by Wal-Mart International Holdings, Inc”.
In its order letter, CCI commented that it dismisses the concern that this merger will have a substantial negative impact on competition in India. Therefore, it gives consent to this deal. CCI observed that these two companies were not close competitors in the business to business sales. Neither did they have a combined market share. Thus, CCI has set aside disapprovals against the proposed combination.
What is interesting is that CCI, without disclosing further details, has revealed that Flipkart’s discounting practices might be dealt with separately. India already has prohibitions on discounting of products by online marketplaces. In the wake of a new drafting policy that proposes further curtailment of online discounts, this revelation by CCI assumes significance.
In May this year, Wal-Mart International Holdings, Inc had asked for CCI’s approval for the acquisition of 51-77% of Flipkart’s shares. This is a historic entry into India’s exploding e-commerce market. Walmart will now subscribe to the ordinary shares issued by Flipkart for an aggregate purchase price of $2 billion in cash.
Sachin Bansal, Flipkart’s co-founder and Executive Chairman, is set to leave the company, selling his 5.5 percent stake. Binny Bansal, the other co-founder, will retain his position as the group chief executive officer (CEO). However, he will sell about 10 percent of his current shares, thus reducing his stake from 5.1 percent to 4.5 percent. Flipkart’s CEO Kalyan Krishnamurthy will retain his post.
Since Walmart’s announcement of its acquisition proposal, protests have been raging throughout the country. There have been accusations of preferential practice and predatory habits of Flipkart. Debates have been ongoing since May 9 over the possible impacts of the deal on small traders. Several trader unions like All India Online Vendors Association (AIOVA) and the Confederation of All India Traders (CAIT) appealed to CCI to shut off the agreement. They expressed concern that such a massive deal will endanger the life of small-time retailers in the country. Traders even threatened to move the Supreme Court to thwart the deal and defend their interests. Despite nationwide protests, the Flipkart- Walmart deal has gone through.
The merger of the two companies does not create an entity that has a monopoly-like position in either the offline or online retail business in India, argued Walmart. They assure that this merger will, in fact, create greater job opportunities and turn out to be a boon for small suppliers and farmers. They aim to provide quality, affordable products to India’s consumers, and at the same time, create fresh opportunities for retailers, farmers, suppliers and women entrepreneurs.
CCI looked into the third party concerns- that of the traders- and came to the conclusion that the issues raised by the opposition do not fall within the competition dimension. Thus, those issues are beyond the scope of CCI. These issues might merit policy intervention but that is the territory of the appropriate regulatory/ enforcement authority.
Walmart’s ride in India had not been smooth, prior to its acquisition of Flipkart. The joint venture in wholesale stores it had begun with Bharti Enterprises Ltd fell through when Bharti exited the merger six years later. Walmart hopes to find a solid footing in the Indian market and offer a tough challenge to its rival, Amazon, with its newly acquired stakes.