by Mihir Dalal
Sachin had his own reasons for courting Bezos. He saw a deal with Amazon as his shot at redemption. The entry of a powerful new investor would considerably diminish the influence of Tiger Global, and by extension, of Kalyan Krishnamurthy. With a new partner, Sachin could start afresh and resume his $100 billion mission. To Sachin’s surprise, Bezos expressed interest. He had respect for how Flipkart had fought off Amazon so far. He also found Sachin to be very impressive, and his arguments persuasive.
Bezos tasked a senior acquisitions specialist at Amazon to look into the possibility of buying Flipkart. But as this Amazon official spoke with Sachin and the Flipkart team, it became clear that the engagement would be fruitless. Just like in 2011, when Amazon had first considered buying Flipkart, its estimation of the company’s worth came out to be unacceptably low. The talks fizzled out.
Soon, however, Amazon would be forced to reconsider its appraisal. A few weeks after they returned from Bentonville, the Flipkart officials were in for a surprise.
TOWARDS THE END of 2017, Doug McMillon and the other Walmart board members convened for a routine board meeting. The most influential member of the board was Greg Penner. In his late forties, Greg wasn’t just the Walmart chairman, he was one of the heirs to the Walton family fortune. The Waltons are one of the richest families in America who own fifty per cent of Walmart. Greg had met Carrie Walton, granddaughter to Walmart founder Sam Walton, at university in Washington. They married a few years later, after which Greg joined Walmart at the end of the nineties. Greg also started a private equity firm and worked as a venture capitalist. In 2015, he became the chairman of the Walmart board, replacing his father-in-law, Rob Walton. Greg’s parents, Clifford and Joyce Penner, were famous in their own right, having authored many sex-advice books.6
Now, Greg turned out to be a strong advocate for a deal with Flipkart,7 so much so, that he put forth a new proposal: if Flipkart was an innovative, fast-growing retail company with an excellent brand, why not buy it out altogether, or certainly acquire a majority ownership? For years, Greg had been especially keen on expanding in Asia. Even though Walmart had been burnt earlier in India, the environment in the country had become more favourable for a fresh attempt. Now that the Indian market was up for grabs, Greg insisted that Walmart had to seize this chance. Like Greg, even the Walmart CEO Doug McMillon pushed for a majority ownership of Flipkart. This would give Walmart control of Flipkart’s management and enable it to bring about major improvements at the company by introducing its enduring retailing practices. By the end of 2017, a decision had been taken: Walmart would offer to buy more than fifty-one per cent of Flipkart.
The stunned mergers and acquisitions team at Walmart began making preparations for negotiating an entirely new deal. It was certainly an audacious idea. Flipkart had been valued at $10.2 billion in its recent funding round. Any buyout offer would have to be significantly higher. If realized, the deal would be Walmart’s biggest ever, exceeding its $10.8 billion purchase of British retail chain Asda in 1999.8
AT FLIPKART, SACHIN was getting increasingly restless about his proposal to become CEO again. He had been hankering for a return to power for months now. In anticipation of a comeback, Sachin had already increased his involvement at the company. Apart from the Billion brand, he had announced a new project in the area of artificial intelligence called AIforIndia. He had promised to invest hundreds of millions of dollars to apply AI across Flipkart. He had also started work on another initiative: designing a new smartphone. For years he had been inspired by Xiaomi. He now wanted to beat Xiaomi at its own game by creating an even cheaper phone that could compete with the Chinese company’s enduringly popular models. It was a wild idea, and it was right up Sachin’s alley. He hadn’t felt this confident, this alive, in a very long time.
Towards the end of 2017, Sachin pressed the board to act. After lingering over Sachin’s request for months, Lee was obligated to respond definitively. A ‘360-degree feedback’ was commissioned by Flipkart’s board to evaluate Sachin’s candidature. It was to be overseen by Jim Kochalka, the leadership coach who had been working with Sachin, Binny and Kalyan for months now. This process involved soliciting feedback about Sachin from his peers, subordinates, bosses and anyone else who may have worked with him. The objective was to determine his behavioural patterns and gauge his managerial abilities.
As soon as the process started, it became clear that Sachin’s mission was being blocked by two of Flipkart’s seniormost officials: Kalyan Krishnamurthy and Sameer Nigam, the head of PhonePe. They were steadfastly opposed to his return. Kalyan’s antipathy was well-known. He had been fine as long as Sachin was tucked away in the distant position of Executive Chairman. He had even cooperated with the board’s efforts to repair his relationship with Sachin. He had been meeting Sachin regularly, as Kochalka had recommended. But if Sachin became Group CEO, Kalyan would have to answer to him formally. That would be unacceptable.
Kalyan warned the Flipkart board that if Sachin returned, he would move on; he wasn’t going to work for Sachin again. Sameer Nigam’s opposition was more surprising given that he had once been close to Sachin. But in July 2015, he had quit Flipkart on a sour note, furious at the way Sachin had displaced him by hiring managers from Google. When Flipkart bought PhonePe in April 2016, Sameer had secured a guarantee that if the company changed its CEO, the stock payouts due to him would be accelerated. This was now about to come true. Like Kalyan, Sameer also stated that he had no desire to report to Sachin again. It took several weeks for Sachin’s evaluation to be completed.
Apart from Sachin’s colleagues, Kochalka played a decisive role in the evaluation process. Through his sessions, he had formed an opinion about Sachin’s interpersonal skills and managerial abilities, and it wasn’t a favourable one. The verdict was unambiguous: Sachin was found ‘unfit’ to be CEO of Flipkart. It was inevitable, and in the end, it was an easy decision for Lee and the other board members. Having lost confidence in Sachin’s leadership skills long ago, they felt ill-disposed to grant his request. The evaluation conducted by the leadership coach simply supplied the evidence to back up their stance.
Around the end of the year, Sachin was told that his candidature had been rejected. He was crushed. All his energy and enthusiasm of the past several months vanished. He began to think that he had been set up. The leadership coach who had conducted the process was well known to Tiger Global – Sachin now doubted that such a person could make an impartial assessment of his abilities. In any case, the Flipkart chairman recovered quickly – he would fulfil his wish in other ways.
IN FEBRUARY 2018, Doug McMillon and other top Walmart officials flew to Bangalore to discuss their new proposal to buy a majority ownership of Flipkart. Doug visited the Flipkart office on Bangalore’s Outer Ring Road, where detailed presentations were made to the Walmart team about Flipkart’s business. Later, senior officials of the two companies also met at the Hilton located within a software park near central Bangalore, a forty-five-minute drive from the Flipkart headquarters. Over dinner, Flipkart paraded its team to the Walmart officials.
This is where Sachin sprung a surprise on his colleagues. Standing next to the Walmart Asia CEO Dirk Van den Berghe, Sachin tapped his glass to get the audience’s attention. He expressed enthusiasm about leading Flipkart in this next phase of its evolution. He said that he and Dirk had held encouraging discussions about the path forward. ‘I want to raise a toast to our partnership. For the next ten, twenty, thirty years, we will rule the Indian market together.’ It was clear to Sachin’s colleagues that he was as resolute as ever to return to the hot seat. His speech was intended to send a message to both the Walmart officials and his Flipkart colleagues; he was making his status as the main man at Flipkart clear to the new owners, and to his colleagues he seemed to be saying that he had the backing of the Walmart leaders. As they listened to Sachin speak, the dozen or so Flipkart executives who were present, exchanged glances, pondering the import of his speech.
Nevertheless, the meetings were productive, a huge step forward.
The Flipkart investors were thrilled by this development. For Lee Fixel, this would be a satisfying conclusion to his long, exacting association with the company. It had seen many highs, but the lows had been the most nerve-wracking experiences of his career. Less than eighteen months ago, Flipkart had been in serious trouble; its survival had been in question. To have come out of this predicament so soon could only be seen as one of the great escape acts in the startup world. Lee became the champion of the deal at Flipkart. His partner in advocating Flipkart’s sale was none other than Sachin, for a very different, but very predictable reason: he was determined to reclaim the title of CEO.
As the Flipkart team was negotiating the minutiae of the transaction with Walmart officials, Sachin spoke directly with Doug McMillon. They had several agreeable conversations about the direction of Flipkart after the sale. As they understood it, Sachin’s involvement was going to be essential.
WHEN A COMPANY is up for sale, it is a norm to conduct an auction in order to extract the highest possible price. And so it was with Flipkart.
In early 2018, Flipkart representatives invited other potential suitors to make an offer. One of these was Alibaba, which was a large investor in Paytm, a rival of Flipkart. Paytm is a mobile payments provider that had also expanded into e-commerce. Stirred by Amazon and Walmart’s pursuit of Flipkart, Alibaba, too, indicated its interest in discussing an investment. However, it soon became clear that Alibaba was keen only on a minority stake. Another complication was the valuation of PhonePe, Flipkart’s payments business that was threatening to overtake Paytm. In deference to Paytm, Alibaba was offering a scanty price for PhonePe, which had become a prized asset for Flipkart. Within weeks, the talks with Alibaba broke down.
Flipkart also relayed Walmart’s offer to Amazon officials. Bezos and his team were shocked. When they had evaluated the possibility of buying Flipkart last year, they had not for a moment believed that any other company would have the audacity and the means to make a rival bid. Flipkart was a hugely unprofitable retail business in a notoriously tricky market. It would require years of patient nurturing before the company could start showing profits. Surely, only Amazon, with its well-established reputation of making risky, long-term bets, could pull off such a deal. Secure in this belief, Amazon’s opening offer had been wilfully inadequate, convinced as it was that the Indian company had no choice but to accept its terms. After learning of Walmart’s interest, the Amazon officials restarted negotiations with Flipkart in earnest.
The two biggest international names in retail were now competing to buy Flipkart.
Still, the Flipkart team was aware of Amazon’s notorious reputation for engaging in discussions just to play spoiler. This time, though, Amazon was quite serious. Jeff Bezos himself hosted Sachin at his house in Seattle. As proof of Amazon’s sincerity, Flipkart extracted a provision that would make Amazon liable to pay a breakup fee of more than $4 billion. This sum would be due to Flipkart in case the two companies signed a merger agreement that later had to be terminated, no matter what the reason.
Sachin had been very excited about the merger with Amazon India. When he had met Bezos, Sachin had pitched the idea that Flipkart should remain independent and continue to be overseen by him and the company’s present management team. The Flipkart team was clearly superior, Sachin had told Bezos. Sachin proposed that Amazon India should continue to exist, but occupy a supplementary, subordinate position. He believed that such a transaction would be a historic achievement for Flipkart, in real and symbolic terms. Not only would the merger yield an extraordinary bonanza, it would be a thumping validation of the local startup ecosystem: an Indian company taking over a promising unit of a global internet conglomerate was considered a fanciful idea.
Despite Sachin’s enthusiasm for a deal with Amazon, the talks had moved slowly. Even as late as March 2018, Amazon hadn’t made much progress in evaluating Flipkart. The Indian firm was wary of sharing details about its business. If a deal didn’t materialize – and at the moment there was no guarantee that it would – Amazon would have secured a massive advantage by getting an inside look at its rival. Naturally, Flipkart only yielded minimal intelligence, resisting most of Amazon’s requests for information. Nevertheless, representatives of the two companies kept in touch. Apart from Sachin, even SoftBank founder Masa Son was keen on a deal between the two companies. Son belived that Amazon’s technology expertise would make the company an ideal owner of Flipkart. He was also attracted by the proposition of establishing a long-term alliance for SoftBank with Amazon, which could be kick-started with this deal. He spoke directly with Bezos and the two kept open the possibility of a merger even though the talks had gone cold for the time being.
The favoured suitor of Lee Fixel and most of the other Flipkart investors had always been Walmart. Apart from their reluctance to share information with Amazon, they were also concerned that India’s anti-trust regulator wouldn’t approve a deal between Flipkart and Amazon, given that the two companies enjoyed a virtual duopoly in e-commerce. On the other hand, the engagement with Walmart was deepening rapidly. Flipkart executives had visited Bentonville several times to make presentations and the two companies had come to an agreement on important matters, including Flipkart’s valuation. Both Walmart and Amazon had offered to value the company at more than $20 billion, nearly double the valuation that Flipkart had fetched less than a year ago in its last funding round.
While Sachin had played an energetic role in the discussions with Walmart, it was Lee who had been pulling the strings and had provided the confidence to the Walmart officials to push on. Lee was no fly-by-night operator. He had a stellar reputation in the startup world and his presence and assurances about Flipkart went a long way towards smoothing the bumps in negotiations.
AS THE SALE discussions were ongoing, another obstacle in Sachin’s path back to the CEO seat had been cleared towards the end of winter 2018. To everyone’s surprise, Binny had made up his mind to leave the company. He had indicated to Flipkart’s board that his work at the company was done. After an exhausting ten-year run, he wanted to do something less taxing, something that would leave him with a lot more time for his wife and their eighteen-month-old twins. Binny was willing to facilitate a smooth transition, but he was determined to move on.
This was acceptable to Sachin, who had taken charge of the deal discussions. Working closely with Goldman Sachs, the investment bank that Flipkart had hired to represent itself, Sachin came up with an outline for the deal. Flipkart would sell fifty to fifty-five per cent of the company to Walmart, giving it ownership control. But it would retain SoftBank and Tencent as shareholders and persuade Microsoft to increase its stake in the company. After his experience with Tiger Global, Sachin didn’t want Walmart to be the sole authority on the Flipkart board. It was best to distribute power. Flipkart also solicited Google and Paypal for minority investments. Essentially, what Sachin had in mind was an overarching anti-Amazon alliance. Sachin had personally spoken with Google CEO Sundar Pichai, who seemed open to the proposal. Another Indian-origin CEO, Microsoft’s Satya Nadella, had expressed willingness to raise his company’s holding in Flipkart.
Additionally, to prove his commitment to the cause, Sachin had sought to increase his ownership in Flipkart. He had begun discussions with financial institutions about taking a personal loan of anywhere between $450 million to $1 billion in order to purchase Flipkart shares and lifthis stake to more than ten per cent, nearly double of what he presently held. He had even discussed the possibility of borrowing from Walmart to fund part of this purchase.
Sometime in March 2018, after Binny had expressed his wish to leave Flipkart, Sachin moved again to assert his claim to the throne.
Lee had presented the Flipkart team to Walmart as an ideal, complementary mix of skills. There was Sachin, the technologist who had the ability to imagine the improbable; Binny whose forte lay in operations; An
anth Narayanan, the former McKinsey senior partner who had turned Myntra into an efficient, fast-growing retailer while nurturing the company’s innovation impulses; Sameer Nigam, a nimble entrepreneur who was building a digital payments app that could become a massive business in the future. But it was Kalyan Krishnamurthy who had been marked out as indispensable, the man who had turned Flipkart around, who made it tick every day.
Sachin, however, had a different picture in his mind. The Flipkart co-founder made it clear to his company’s board that he wanted to become Group CEO. Though his candidature had been rejected by the board earlier, Sachin believed he had solidified his claim by proposing to double his ownership in the company. This constituted a huge personal risk, as Sachin would have to borrow hundreds of millions of dollars to fund the purchase. But he didn’t care; it was a statement of his conviction about Flipkart’s future, about his willingness to risk everything in order to return to the driver’s seat at his beloved company. Sachin believed that he had atoned for his mistakes by spending time away and giving Kalyan and Binny the freedom to run Flipkart as they saw fit. He had even agreed to leadership coaching and to improve his interpersonal skills. It was now time for him to get his due, especially in light of Binny’s desire to leave the company. He had no doubt that an innovative startup such as Flipkart had to be run by its founder. Though Kalyan had his uses, he was ultimately just an employee. It was Sachin who had the entrepreneurial drive and vision. Kalyan would have to learn to work with him.
Binny’s impending exit compelled the Flipkart board to act on Sachin’s claim. This time, Lee took it upon himself to survey the Flipkart team so he could judge Sachin’s suitability for the role he wanted. Sachin was informed that he could only become CEO if his colleagues supported his candidature. They were the ones in charge of the daily administration of the company and it was essential for the stability of the firm that any CEO have their support.
