Amazon sweetens bid for Flipkart with $1-2 bn breakup fee
11 April 2018
Amazon.com Inc has offered a breakup fee of between $1 billion and $2 billion as it seeks a significant stake in home-grown ecommerce major Flipkart, reports FactorDaily citing sources.
A breakup fee during deal negotiations underscores the serious intent of a merger or acquisition by the party offering the fee and is paid to the other party if the deal doesn't close successfully or the side offering the fee backs out of a deal.
“Amazon is keen on the deal and the breakup fee can be anything north of $1 billion in a deal where Flipkart is valued at $18-20 billion,” said one of the sources on Monday, adding the quantum of the fee has not been finalised.
Flipkart is close to a deal with Walmart Inc, but Amazon obviously wouldn’t like such a deep-pocketed rival in the Indian market and has held early exploratory talks with Flipkart. Walmart is in talks to buy a 55 per cent stake in Flipkart for $10-12 billion, and the deal is considered more likely to go through (See: Walmart finishes due diligence on Flipkart, may pay $10-12 bn for stake).
Amazon declined to comment on the report while Flipkart and Walmart did not immediately respond to a request seeking comment.
Amazon, the world's biggest online retailer, is slowly bridging the gap with the rival Flipkart to expand aggressively in the country's growing e-commerce sector.
India is a major growth market for Amazon after it lost China to local players who understood the market much better.
The breakup fee shows how keen Amazon is on a substantial stake in its Indian rival and is angling to consolidate its hold on Indian e-commerce market, which is projected to grow at $200 billion by 2026 from $20 billion now.
The quantum of the breakup fee is yet to be decided by Amazon, the FactorDaily report said citing three sources with knowledge of the negotiations, who declined to be identified.
If accepted by Flipkart and its investors, Amazon and the Indian company will file a pre-filing consultancy request before anti-trust regulator Competition Commission of India (CCI) with preliminary details of the impact of the merger, should it go through.
“The breakup fee is also a turning point in Flipkart’s discussions with Walmart,” one source said.