On May 8, Walmart had announced its plans to acquire 77 percent stake in Flipkart for $16 billion.
The Competition Commission of India (CCI) Wednesday approved the acquisition of Flipkart by US-based Walmart, three months after the latter announced the acquisition plan.
“The commission is of the opinion that the proposed combination is not likely to have an appreciable adverse effect on competition in India and therefore, the same is hereby approved,” the CCI said in its order letter.
CCI said the two parties were not close competitors in the B2B sales nor did they have a combined market share that could raise competition concern.
It also acknowledged segments such as skincare, haircare, apparel and accessories as some of the horizontal overlapping areas. But, it noted the combined value of sales of the parties in this segment was low and relatively insignificant to the size of the markets for the said products.
On May 8, Walmart had announced its plans to acquire 77 percent stake in Flipkart for $16 billion, as it made an elephant-footed 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.
Flipkart’s Co-Founder and Executive Chairman Sachin Bansal is expected to exit the firm, selling his 5.5 percent stake. Binny Bansal will be selling about 10 percent of his current holdings, lowering his stake to about 4.5 percent from the current 5.1 percent.
“We welcome the CCI’s decision. Walmart remains committed to contributing to the Indian economy by supporting smallholder farmers, manufacturers, and our Kirana customers. Our partnership with Flipkart is testament to our continued confidence in our ability to contribute to this market. Flipkart is a prominent player in India with a strong, entrepreneurial leadership team that is a good cultural fit with Walmart. We believe that the combination of Walmart’s global expertise and Flipkart will position us for long-term success and enable us to contribute to the economic growth,” Walmart said in a statement.
Currently, the Walmart Group is present in India through its indirect wholly-owned subsidiary Walmart India, which is engaged in wholesale cash and carry of goods.
On account of restrictions under the Foreign Direct Investment (FDI) policy, Walmart India cannot engage in direct sales to consumers (B2C Sales).
The CCI also touched upon the third party concerns and representations made against the deal. Many of these concerns pertained to predatory practices and preferential treatment Flipkart provides to specific sellers on its platform. It, however, said none of these issues have any nexus to the competition dimension of the proposed deal.
“Issues falling beyond the scope of the act cannot be a subject matter of examination by the commission, though they may merit policy intervention,” it said.
“As per FDI policy an e-commerce platform cannot influence market prices directly or indirectly. However, this is a matter of consideration for the appropriate regulatory/ enforcement authority. The issues concerning FDI policy would need to be addressed in that policy space to ensure that online market platforms remain a true marketplace providing access to all retailers,” it added.
Google-parent Alphabet Inc was also in talks to bring in fresh investment into Flipkart. However, with Google coming up with its own e-commerce venture, the deal talks faded off.
All India Online Vendor Association (AIOVA) welcomed the deal however added that the current anti-competitive practices and violation of FDI policy as detailed in the order can be a problem for the Indian companies held by Flipkart Singapore.
“The commission does suggest that this conduct could be anti-competitive in nature. This is a positive sign for AIOVA, as the commission has taken cognizance of these issue. Hence, we firmly believe all these issues will be duly addressed by the commission in case number 20 of 2018,” it said.