Why did Flipkart and eBay India part ways?

eBay entering India as an independent entity is good for competition and will help the Walmart-Flipkart deal get a boost before the Competition Commission of India (CCI).

The Flipkart-Walmart deal has been touted as one of the biggest deals not only in the world of ecommerce but also in the Indian startup ecosystem.

Now valued at $21 billion, Walmart has acquired Flipkart’s group of companies including - PhonePe and Myntra. However, eBay, which became a part of the Flipkart Group last year will be exiting along with multiple other investors.

Hours after the Walmart-Flipkart deal was announced, eBay said it had notified Flipkart and Walmart about its intention to sell its holdings in the former, which would give it gross proceeds of approximately $1.1 billion.

The Flipkart-eBay deal had pumped in $500 million into the Bengaluru-based unicorn. According to the regulatory filing by the company, eBay has close to 5.44 percent ownership interest in Flipkart.

There are multiple reasons that led to the parting of ways. Sources claim that eBay India’s business was not doing well, and it was also losing in Snapdeal.

With this exit, eBay gets the option of making a quick buck and recoup some of its losses incurred in other Indian assets.

Another reason that could probably be a push factor for eBay is one that includes IP rights. A browse through the user agreement page of eBay.in reveals that while eBay India desktop users would have to contract with Mintkart India Private Limited, eBay app users in India still have to agree with the eBay Inc, US for signing the user agreement.

Even after eBay sold its India business to Flipkart, eBay Indian app users still have to contract with eBay Inc, US because the IP rights for the app is still being retained by eBay Inc.

This could have also made the matter more complex for Walmart and led to a situation where Walmart being the majority owner of eBay India (Mintkart), would see its app users having user agreements with its rival, eBay Inc in the US. Questions mailed to eBay Inc did not elicit any reply till the time of publishing this story.

Satish Meena, senior forecast analyst, Forrester, said, “Not much details are out on the exit of eBay but definitely sellers of both marketplaces would have got confused and there would have been an overlap between the two. The recent exit at such high valuation also gave eBay an opportunity to recoup the loss they faced in other Indian investments in recent years”.

Arvind Singhal, chairman, Technopak, said, “Both Walmart and eBay are competitors in the US and it wouldn’t make sense to do business together in India. It might be also that Walmart wouldn’t have wanted to have a conflict of interest in a business where eBay being an investor. It’s not that Flipkart letting eBay India go. It is a pure discussion between investors.”

Harminder Sahni, managing director, Wazir Advisors, said, “Other acquired companies are fully absorbed into the Flipkart business. But eBay India was a relatively new business entity. Even eBay India’s market share in India is very little”.

The next factor that would have pushed the final exit of eBay India is Walmart’s positioning before the anti-trust regulator, CCI. The Confederation of All India Traders (CAIT) recently said that it will move the fair trade regulator to file objections on the proposed Walmart-Flipkart deal, claiming that the agreement would lead to an uneven playing field and massive job losses.

Though eBay India’s market share is not significant, Walmart could have become extra cautious as a higher number of market shares while under the scrutiny of CCI would upset the apple cart.

A legal expert who did not want to be named, said, “eBay re-entering India as a separate independent entity will lead to healthier competition and will help the Walmart-Flipkart deal to pass muster before the CCI. Walmart can always point out that there is another bigger ecommerce giant, eBay playing in the Indian e-commerce market.”