If you thought it would be that easy for a multi-billion company like Walmart to acquire Flipkart, you underestimated the size of the $16 billion deal. It appears that Walmart bit more than it can chew.
The Arkansas-headquartered multinational retail corporation has sold $16 billion of bonds to help finance their Flipkart acquisition. Walmart has offered both fixed rate bonds and floating rate notes.
Last month, after a lot of media speculation, Walmart announced to acquire 77 per cent stake in Flipkart for a whopping $16 billion. The remainder of the business is held by some of Flipkart’s existing shareholders, including Flipkart co-founder Binny Bansal, Tencent Holdings Limited, Tiger Global Management LLC and Microsoft Corp.
Following the deal, the multinational retailer may invest $2-3 billion in Flipkart to take on other e-commerce players in India.
Walmart has been eyeing the Indian market and had been doing background preparation before finalising the deal. For instance, just a week before the announcement of the deal, Walmart sold a controlling stake of its British business, Asda, to a competitor for $10 billion.
The deal has increased the pressure on the company. The investment strategy of using borrowed money to increase the potential return of an investment, or leverage, will rise to about 2 times EBITDA. The debt will jump by more than $10 billion.
The new figures have also caused a change in behaviour of market analysts towards the company. S&P Global Ratings is planning to downgrade the company’s AA ratings due to its “aggressive global deal-making” as it tries to compete with Amazon.
While Moody’s Investors Service has been more positive and has applauded Walmart’s “historically flexible” financial policy.
The development was first reported by Bloomberg.