Is SoftBank Getting Cold Feet About Selling Its Stake in Flipkart to Walmart?

On Thursday Walmart confirmed they signed a definitive agreement to become the largest shareholder in India’s Flipkart. The company stated they would take a 77 percent stake in Flipkart for $16 billion.

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Slightly higher than was originally reported the week before to be a $16 billion deal for 75 percent.

READ MORE: Walmart Beats Amazon To Acquire Flipkart For $16 Billion

eBay also announced they would divest themselves from Flipkart and review their strategy moving forward in India.

As part of the divestment of Flipkart, eBay will make a sizeable profit and gain back the domain name and operations, which were part of the original deal they had struck with the Indian marketplace.

READ MORE: eBay Doing Another Reboot in India – Selling Stake in Flipkart

All this happened after Amazon tried to muscle into the Flipkart/Walmart tie up. The company reportedly matched Walmart’s proposal, but also added a $2 billion breakup fee.

READ MORE: Amazon Boosted Its Credit Line Ahead of Report on Flipkart Acquisition

After all this back and forth with the three largest U.S. eCommerce operations involved trying to work out a long-term deal with Flipkart in India, it seems this week’s confirmation from Walmart settled the Flipkart merger news.

Barring any problems with regulatory approval in India, Walmart would own 77 percent in the company and now control its future.

But Wait! A new wrinkle emerged Friday night that could turn everything upside down!

Softbank Has Second Thoughts

According to an article by India’s The Economic Times, the publication claims in a headline:

“24 hrs after Flipkart deal, Softbank is having some serious second thoughts on stake”

The article goes on to say that SoftBank’s CEO Masayoshi Son now has second thoughts about selling its 21 percent stake in Flipkart to Walmart.

It had previously become known that when Amazon entered the Flipkart sweepstakes in the 11th hour, Softbank suggested the Flipkart board take a hard look at Amazon’s proposal.

According to the published story “SoftBank was in favor of Amazon’s offer as it wanted to invest additional capital in the combined entity and also potentially buy more shares from existing investors, said a third source.”

What’s causing second thoughts is that SoftBank invested in Flipkart in August 2017. While selling its stake now would potentially net the company about $1.5 billion in gross profit, there is a new double taxation wrinkle that may have been overlooked.

SoftBank is registered in Jersey, which has not DTAA (Double Taxation Avoidance Agreement) with India. A DTAA avoids that investors do not pay taxes in the source country and the country of residence.

Also, because the company purchased the stake in Flipkart within the last year, SoftBank would have to hold on longer to its stake in Flipkart to avoid other short-term investment taxes.

The article does claim that SoftBank executives are in touch with Walmart CEO Doug McMillon and that SoftBank is still supportive of the sale. But it further says:

“As of now, SoftBank has not exited Flipkart. It will take a call on the exit in the next 10 days,” said one of the sources mentioned above. “Son is a big believer in India and thinks that the valuation of the company (Flipkart) can go up further.”

A bit of double talk? Seller’s remorse?

Reuters also reported Friday night that Walmart confirms there is no breakup fee in the agreement with Flipkart. So this begs the question why would the company address this question if they were not concerned about SoftBank’s possibly getting cold feet.

And to add insult to injury, some Wall Street analysts seem puzzled by Walmart’s decision to pay that much for Flipkart. After Walmart officially announced the investment in Flipkart, the stock went down 4 percent and only recovered slightly.

“I think investors got this deal exactly right: it makes zero sense. I read Walmart’s presentation and listened to the entirety of its call with investors and I remain as puzzled as I was when I heard the deal.”

Ben Thompson, a business, technology, and media analyst

India’s eCommerce Future

While the soap opera for Flipkart may continue, small businesses in cross-border trade need to take a long hard look at India.

If the big guys are willing to throw around that much money, the market may be more important to American and European eCommerce businesses than China.

While Alibaba tries to smooth export to China for Western brands, India has a lot less regulatory hurdles. The market is equally interested to gain access to Western goods and brands and Internet access is expected to reach 500 million users in India this year.

PayPal and other payment processors are operating in the country. The population is largely accepting of digital wallets and logistics carriers are expanding routes and services to the country.

And many sellers may not realize another interesting fact, India is the second largest English speaking country in the world after the U.S. and about twice the English speaking population of the UK!

India provides a lot of promise for cross-border trade.

Regardless of the final outcome in the Flipkart saga, small business eCommerce merchants in the U.S., UK, Canada, and Australia need to look to India as a possible future market. Especially if the merchants are selling unique goods not easily available in India.

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