May 3, 2018 / 3:03 AM / 2 months ago

BREAKINGVIEWS-Flipkart bid would be rare defensive one by Amazon

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

By Una Galani

MUMBAI, May 3 (Reuters Breakingviews) - Jeff Bezos may be getting rattled in India. Amazon is circling Flipkart, according to media reports. Chasing a business started by two former employees suggests the $760 billion e-commerce giant is worried by the idea of its main local rival joining forces with Walmart. The battle underscores the significance of the large developing market.

The $255 billion U.S. retailer was close to wrapping up a deal with Flipkart, valuing it at up to $19 billion, Reuters reported on April 12. The company led by Doug McMillon has spent months negotiating with the online marketplace and its large backers, including SoftBank’s Vision Fund, which invested last year.

Joining the fray would send a signal that Amazon is less confident of closing the gap with the company founded by Sachin Bansal and Binny Bansal, the unrelated software engineers who briefly worked for the Seattle-based outfit before starting Flipkart in 2007. Amazon entered the Indian market around 2012 and has 31 percent of the online retail market, according to Forrester, eight percentage points behind its homegrown rival.

Though Amazon’s interest in Flipkart is unconfirmed and could just be sly negotiating tactics by either side, any show of insecurity would be surprising. Bezos last month said Amazon was the fastest growing marketplace in the country of 1.3 billion people. He has committed $5 billion to try and conquer the market where Morgan Stanley reckons online shopping will be worth $200 billion within a decade.

Taking control of its rival would reduce the pain of a discount war that Walmart’s entry would prolong. It’s unclear, however, whether India’s competition authority would permit a Flipkart merger with Amazon, even though both have just a tiny share of the wider $800 billion retail market.

A successful Amazon bid also would upend much of Walmart’s international strategy. Earlier misadventures in China prompted the Arkansas-based group to join forces with online retailer JD.com in return for a small stake. This week it announced a plan to sell its UK business to J. Sainsbury for nearly $10 billion. The only consolation is that, in contrast to Amazon’s $14 billion purchase of Whole Foods last year, an Indian deal would be from a defensive position.

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CONTEXT NEWS

- Amazon is interested in buying Indian e-commerce company Flipkart, Reuters reported on May 2, citing unnamed sources, following a report by TV station CNBC-TV18 that Amazon had made a formal offer to buy 60 percent of its larger local rival.

- Amazon told Reuters it does not comment on rumours and speculation.

- In April, Reuters reported that Walmart was close to buying a majority stake in Flipkart for up to $12 billion. Talks with Walmart are ongoing, and a deal is expected to be agreed soon, the news agency reported on May 2.

- CNBC-TV18 also reported that Amazon had offered Flipkart a breakup fee of $2 billion to convince it to discuss an offer.

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Editing by Jeffrey Goldfarb and Katrina Hamlin

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