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Walmart plans to spin off PhonePe from Flipkart

The proposed demerger will coincide with PhonePe's ongoing fund raising plan of about a billion dollar through primary and secondary sale of shares.

, ET Bureau|
Updated: Oct 11, 2019, 07.44 AM IST
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Agencies
Flipkart
This is a significant gain from the Flipkart’s valuation of little over $20 billion at the time of the acquisition, giving Walmart a huge financial benefit.
New Delhi: Global retail major Walmart Inc is planning to demerge PhonePe, the payment system and digital wallet company of Flipkart, so that its ownership will be vested directly with the US retail giant, two people familiar with the transaction told ET.

The proposed move will pave the way for Walmart to get into India’s booming digital payment space directly.

This is currently dominated by Ant Financial and SoftBankbacked Paytm but competition is set to heat up with tech giants Google, Amazon and Facebook testing the market through their respective payment gateways—Google Pay, Amazon Pay and WhatsApp.

The proposed demerger will coincide with PhonePe's ongoing fund raising plan of about a billion dollar through primary and secondary sale of shares.

payments-play


“Walmart that had paid $16-17 billion to acquire about 82% stake in Flipkart has decided to vertically demerge the two entities and unlock their value separately. The move will help some of the existing investors in Flipkart to cash out in the secondary sale,” said one of the persons quoted above. Goldman Sachs is advising the group on the transactions.

Flipkart acquired PhonePe in early 2016, within a year of its launch by a trio of former Flipkart executives—Sameer Nigam, Rahul Chari and Burzin Engineer.

“We are not commenting at this stage,” a PhonePe spokesperson said. Walmart and Flipkart did not respond to emails sent by ET.

The Flipkart board had earlier in the year approved the hiving off under an independent board, ET had reported in March.

Eventually both these companies — Flipkart and PhonePe — will be listed separately over the period, sources said. At the time of acquisition in May 2018, Walmart had agreed with the other major shareholders of Flipkart who remained invested in the company to make Flipkart a public listed company in next four years.

PhonePe, which was valued at $7 billion by Morgan Stanley in September 2019, is looking at a valuation of up to $10 billion for the current fund raising round.

“PhonePe’s business is emerging as one of the country’s top startups, a surprise benefit for Walmart from its largest-ever acquisition.

Following the demerger, Wal-mart will have about 82% stake each in PhonePe and Flipkart separately, with a combined valuation of $27-30 billion,” said an investment banker in the know.

This is a significant gain from the Flipkart’s valuation of little over $20 billion at the time of the acquisition, giving Walmart a huge financial benefit.

Walmart currently owns about 82% in Flipkart. Chinese multinational conglomerate Tencent and US-based investment firm Tiger Global together own a little over 10%. Binny Bansal, one of the cofounders of Flipkart, owns 3.52% in the company. A group of global giants and marquee investors such as Microsoft, Iconiq Capital, Temasek and UBS together own a tad below 5% stake in the company.

India’s digital payments space is rapidly turning into a new corporate hunting ground with the world’s top retail and tech giants Amazon, Google, Facebook and Alipay, among others, jostling to grab a larger slice of the multi-billion-dollar market.

WhatsApp, Facebook’s popular messaging service, is currently pilot testing its digital payment service among one million subscribers, while Google Pay and Amazon Pay are aggressively pushing their products in India.

Also Read

PhonePe in talks with ICICI Bank for UPI play

Morgan Stanley values PhonePe at $7 billion

PhonePe’s FY19 loss at Rs 1,907 crore

PhonePe FY19 loss surges to Rs 1,905 crore

BSES customers can recharge prepaid meters via Paytm, PhonePe

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