Understanding the Walmart-Flipkart Deal: Part II (CCI’s Evaluation of the Acquisition)

By: Ahkam Khan & Alok Chaurasia

In Part I of this editorial series, the authors had explained the business model of the two parties to the acquisition. Based on the model, the CCI had observed that the parties had a certain degree of horizontal overlap with respect to their operations. However, it concluded that a vertical overlap was not possible due to restrictions on Walmart engaging in B2C sales under the FDI Policy. Thereafter, CCI passed an order under Section 31(1) of the Competition Act holding that the proposed combination was not likely to have any appreciable adverse effects on competition.


At the onset of the enactment of the Competition Act, India discarded the age-old tradition of preventing monopolies and instead undertook steps to foster fair competition and the welfare of consumers. In pursuance of this, CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 were enacted as the principal guidelines to streamline the procedure involved in mergers and combinations in a way that it was in conformity with the Competition Act, 2002. Section 5 of the Competition Act defines a combination as mergers, amalgamation, acquisition of control, shares, voting rights or assets, of one company by another company or group.

Section 6 provides for regulation of such combinations by stating that all combinations that have an appreciable adverse effect on their respective relevant market shall be rendered void. Any person or enterprise who proposes to enter into a combination with another entity must notify the commission of the said proposal, at any time prior to consummation of the deal, disclosing the details of the combination for the purposes of evaluation by the concerned authorities. Under Regulation 14 of the Combination Regulations, the commission is empowered to investigate the notice made by the concerned parties.

Section 20(4) of the Competition Act provides for relevant factors to be taken into consideration while assessing the adverse effect a combination will have in case it comes into effect, like, creating barriers to entry in the market, market share in the relevant market, likelihood that the combination will remove effective completion etc. While assessing, the commission tends to look at the long-term effects of the proposed deal, however difficult a task it is. The task of identifying and quantifying post-merger efficiencies is extraordinarily difficult and sometimes risks making predictions on existing circumstances. After a careful perusal of the facts and circumstances, the commission is empowered to pass an order under Section 31 of the Act.


Combinations are classified into three; namely horizontal, vertical and conglomerate. A merger entails a horizontal combination of business entities that combine operate on the same level in the production chain. For example, a printer manufacturer acquiring another entity engaged in the same work. Combinations of this type are viewed as especially dangerous to the mandate of fair competition. A vertical combination is one where rival parties at different stages of a production chain merge to form a single entity. For example, a company engaged in manufacturing cartridges acquires a company that manufactures printers that use those cartridges. Vertical integration brings unified control and ownership over upstream and downstream assets. Finally, in a conglomerate merger, the entities merged operate in different businesses entirely.

The Horizontal Overlap in the Acquisition

Both the parties to the acquisition were present in the B2B sector with Walmart having both offline (Cash and Carry) and online presence accessible to registered members while Flipkart was present in the offline sector only. The identification of an overlap necessarily called for a need to assess the market. The CCI in this course identified the relevant market as the pan-India market for B2B sales (both organised and unorganised sector). Walmart had submitted that as per the India Brand Equity Foundation, the Indian retail industry was mainly unorganised and out of the total retail industry, 30%-40% were B2B sales in which Walmart and Flipkart only had a market share of around 5%. As a result, the two parties were mere small pieces of the bigger puzzle, i.e., the Indian retail industry.

However, the CCI was not satisfied and asked for further information regarding the parties’ businesses. The CCI observed that while Flipkart was particularly strong in the mobile devices and electronic sales, Walmart was a big player in the groceries B2B sales. The point of overlap between the two parties was in the lifestyle market i.e., cosmetic, healthcare and hygiene products, apparels and accessories, etc. However, even in the overlapping markets, the number of combined sales were insignificant compared to the market size. As a result, there was little possibility of the acquisition changing the market structure.

Though the authors believe that the market determination was correct but considering the anticipatory nature of combination regulation in India, the CCI should have paid greater heed while characterizing the organised and unorganised sales in the B2B sector. If the unorganised B2B sales are left aside, these parties face competition from Reliance Retail, Metro Cash and Cash, etc. None of these players has sufficient market power nor is B2B their main focus in business, and therefore, the likelihood of expansion of the organised B2B sales would entirely rest with Walmart, which is not carrying out any other trade in the country.

The CCI should have taken greater care while evaluating the combination’s probable appreciable adverse effects on competition and analysed all the factors under section 20(4) in detail before passing the order. It should have also considered the one-way shift towards organised sales in the retail industry and considered how the size of organised B2B sales could greatly inflate in the near future.  This coupled with the fact that Flipkart now had access to Walmart’s deeper pockets could largely sway the retail industry indirectly in its favour.

The Vertical Overlap in the Acquisition

In the B2C sector, Walmart is absent due to the restrictions placed under the FDI policy proscribing direct consumer sales. The acquisition is only Walmart’s entry into the marketplace model for e-commerce entities to facilitate B2C trade between businesses and sellers acting as an intermediary platform. There is no bar under the FDI Policy for entering this segment and 100% FDI is allowed in automatic route with respect to marketplace based e-commerce entities. Therefore, the CCI observed that there was no vertical overlap between Walmart’s B2B sales and Flipkart’s online marketplace model.

The CCI failed to consider how Walmart may take an indirect route in influencing B2C sales and use its stronghold in the marketplace based e-commerce (through Flipkart) to capture and expand its B2B sales. An example of this practice could be a situation where Walmart takes low commissions out of the sales on flipkart.com from sellers who bought their stocks from Walmart’s B2B inventories in the ‘Best Price’ stores. Such a practice is neither rare nor impracticable as evident from CCI’s order itself; the CCI accepts that low commissions from those sellers on flipkart.com who bought their products from Flipkart’s B2B wing could be an anti-competitive practice worthy of a detailed investigation.


The CCI approved the proposed combination under Section 31(1) on 8 August 2018 despite huge protests and even strikes by various trade associations, unions and other bodies. The information provided by Walmart was not disclosed subject to confidentiality under Section 57 of the Competition Act. However, in case the information at a later stage is found to be incorrect, the order may stand revoked. This is particularly important in the present scenario since the Confederation of All India Traders (CAIT) has filed an appeal in NCLAT against the approval of Walmart-Flipkart Combination after the rejection of its objections by the CCI. The NCLAT has now asked Walmart and Flipkart to present their business model in India, which the authors have already described in the first part of this series.

(The upcoming post shall analyse the merits of CAIT’s contentions against the Flipkart-Walmart deal regarding the possible anti-competitive conduct that could hit the Indian retail industry because of the combination)

(Ahkam and Alok have served as the editors of The RMLNLU Law Review Blog. Both the authors are currently students at Dr. Ram Manohar Lohiya National Law University, Lucknow.)

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