Walmart investors unhappy with Flipkart buyout, shares plunge 4 per cent
The investors of Walmart don’t seem to be very happy with the deal signed with India’s largest ecommerce player Flipkart. After the deal was announced, the shares of Walmart fell by as much as 4%, wiping out nearly $10 billion of its market cap on the New York Stock Exchange (NYSE).
The market capitalisation of the US-based retailer dropped to $242.9 billion, hitting a seven-month low.
Walmart announced on Wednesday that it will be acquiring a controlling stake (roughly 77%) in Flipkart for nearly $16 billion dollars.
As per the statement from the company, Walmart will be financing the deal through a combination of newly issued debt and cash on hand.
It also announced that Walmart expects a negative impact to FY19 (Earnings Per Share) EPS of approximately $0.25 to $0.30, which includes incremental interest expense related to the investment.
Walmart is anticipating an EPS headwind in total of around $0.60 per share, which comprises operating losses of approximately $0.40 to $0.45 per share, assuming minimal tax benefit for losses in the near to mid-term. This amount includes about $0.05 per share related to amortisation of intangible assets and depreciation of short-lived assets resulting from purchase accounting, which will only last for a few years post-closing. In addition, the headwind will also comprise interest expense of approximately $0.15 per share.
“Given the company’s financial strength, we anticipate the continuation of our current share buyback program while maintaining our strong credit profile,” the company said in a statement announcing the deal.
Interestingly, Amazon.com’s shares rose marginally by nearly 1%.
During the investor call post the deal as well, investors expressed their concerns in terms of the large investments being made outside the US market, being able to retain top talent, surety in growth of the Indian market and what the deal will bring to Walmart’s stable.
Walmart CEO Doug McMillon and his team, however, are very confident of the deal. Doug said during the call that he feels that this is the right investment at the right time, adding that Walmart will learn from Flipkart how an ecosystem and the different pieces of it work and apply those learnings in other markets.