Walmart’s $16 billion Flipkart deal sparks a selloff

Walmart’s $16 billion Flipkart deal sparks a selloff

Walmart shares slid Wednesday as investors learned a $16 billion deal to buy a majority stake in Indian e-commerce giant Flipkart would hurt profits.

The U.S. retail giant confirmed it would buy an initial stake of roughly 77 percent in Flipkart, while the remainder of the business will be held by its existing investors, including Flipkart’s co-founder Binny Bansal, Tencent, Tiger Global and Microsoft.

Walmart said the deal, its largest ever, could shave off between 25 cents and 30 cents per share from earnings this fiscal year, assuming the deal closes at the end of its fiscal second quarter. The discount retailer previously estimated earnings in the range of $4.75 and $5 per share.

Walmart said the deal could also reduce earnings by 60 cents per share next fiscal year.

Shares fell about 4 percent Wednesday in premarket trading on heavy volume. They’ve gained about 12 percent over the past year.

India is an important battleground. Walmart fought hard for this deal because it could be crucial in its fight against Amazon. The tech company reportedly made its own bid for a majority stake in Flipkart.

Moody’s analyst Charlie O’Shea said he views the deal favorably because it gives Walmart immediate scale in the Indian e-commerce market.

“As Flipkart is expected to generate meaningful losses for at least the next few years, this is clearly an investment for the future, and when viewed in tandem with the recently announced sale of a majority stake in Asda, is indicative of Walmart’s long-standing strategy of shifting resources into higher growth potential markets and segments when opportune,” he said.

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