24 hrs after Flipkart deal, Softbank is having some serious second thoughts on stake

BENGALURU: SoftBank’s Masayoshi Son has still not decided whether to sell SoftBank Vision Fund’s 21% stake in India’s largest online retailer Flipkart, according to two sources familiar with the situation.

This is because SoftBank is still figuring out the tax liability that would arise if it sold its shares less than a year after investing in Flipkart. Further, it sees a significant upside potential in Flipkart, which has been valued at about $22 billion in the transaction announced on Wednesday, according to the two people.

The Bentonville-based retailer has announced plans to acquire 77% stake in Flipkart for $16 billion, which seemingly includes SoftBank’s stake in the company. But the Japanese conglomerate is still weighing its options. “As of now, SoftBank has not exited Flipkart. It will take a call on the exit in the next 10 days,” said one of the sources mentioned above. “Son is a big believer in India and thinks that the valuation of the company (Flipkart) can go up further.”


On Wednesday, during presentation of results in Japan, Son had inadvertently disclosed the deal before Walmart and Flipkart could announce it in India.

SoftBank may Hold Flipkart Stake for 6-12 Months
SoftBank Vision Fund had invested about $2.5 billion in Flipkart in August 2017 and is expected to pocket $4 billion if it sells its stake. Flipkart, Walmart and Soft-Bank spokespersons declined to comment.

SoftBank is supporting Walmart’s acquisition of a controlling stake in Flipkart, said one of the people cited. “This (the deal) happened quickly. Discussions are on with Walmart to help them facilitate the closing of the transaction and determine SoftBank’s role in the company going forward,” according to this person.

During the recently concluded negotiations, SoftBank had pushed the Flipkart board to consider a potential merger with Amazon India. SoftBank was in favour of Amazon’s offer as it wanted to invest additional capital in the combined entity and also potentially buy more shares from existing investors, said a third source. SoftBank executives are in touch with Walmart CEO Doug McMillon.

“The situation is still very fluid,” said another source familiar with the development. “Soft-Bank’s fund is registered in Jersey and they are suffering a huge tax liability because there is no DTAA protection with Jersey.”

Signed between India and other countries, a Double Taxation Avoidance Agreement (DTAA) ensures investors don’t end up paying taxes on income earned from the source country and also the country of residence. To avoid the short-term taxation issue, SoftBank may hold the Flipkart stake for 6-12 months, said the source mentioned above.

This may crimp Walmart’s plans to acquire a large stake as SoftBank is the single largest shareholder along with Tiger Global Management, whose stake is expected to come down from 20% to 5% after the transaction closes.

It could not be ascertained if SoftBank would eventually opt to keep a part of its stake in the Indian etailer even as Flipkart holds talks to bring in Google owner Alphabet as an investor. Walmart’s buyout of Flipkart is expected to close by the year-end, the US retailer had said in a statement.

Other remaining shareholders in Flipkart are cofounder and group CEO Binny Bansal (4-5%), Tiger Global (5%), Tencent (6%) and Microsoft (1%). The remaining stake is held by a few small investors and employees. SoftBank had invested in Flipkart after a failed attempt to orchestrate a merger with Snapdeal, which was its first bet in the Indian online retail space back in 2014. The Japanese company invested about $900 million in Snapdeal in the hope the etailer would be able to challenge Flipkart’s market leadership, but saw the company slip to a distant third behind Amazon India by 2016.


The Flipkart group, which includes fashion portals Myntra and Jabong, has a combined market share of over 39.1% compared with Amazon’s 31.1% in the Indian online retail space, according to a recent report by Forrester Research.