By Sarah Nassauer and Corinne Abrams 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 10, 2018).

Walmart Inc. said Wednesday it has agreed to take control of India's largest e-commerce company, Flipkart Group, for $16 billion, betting that growth in the South Asian market will make up for the short-term losses from taking on the unprofitable startup.

Investors sent Walmart's stock down about 3% on the day in an indication of skepticism about the cost of the deal and whether it can help the Bentonville, Ark.-based retailer counter Amazon.com Inc.'s push into India.

Walmart executives cast the largest acquisition in its history as a long-term play in a market with a rising middle class and plenty of room for growth in mobile adoption, e-commerce and retail overall. Only about 15% of India's 1.3 billion people shop online, according to research firm Gartner.

"If we were looking at this company with say a three to five-year horizon we wouldn't invest elsewhere" beyond North America, CEO Doug McMillon said of Walmart on a call with investors. The purchase is about "setting the company up for growth and profits in the future," he said.

Once the deal is complete, Walmart will own 77% of Flipkart, though other investors may join in. The retailer said its investment includes $2 billion in new equity funding to help Flipkart grow.

The transaction will reduce Walmart's per-share earnings by 25 cents to 30 cents for its current fiscal year if the deal is completed in the year's second quarter, the company said. Walmart's profit is expected to take a bigger hit of 60 cents a share in the next fiscal year as the retailer invests to increase Flipkart sales.

Walmart, which had $6.8 billion in cash on hand as of Jan. 31, said it will take on new debt to fund the transaction, but didn't provide details on financing.

Global retailers have long salivated over the potential purchasing power of Indian consumers, but few have been able to make much money there. Per-capita gross domestic product in India today is about 30% lower than China's a decade ago. Furthermore, e-commerce appears to be taking a breather after years of dramatic growth. Online sales in India more than doubled in 2014 and almost tripled in 2015, but were nearly flat in 2016, according to estimates from Credit Suisse.

Prevented by regulations from selling products directly to consumers, Walmart opened its first wholesale outlets in India in 2009, but grew slowly. It has 21 Best Price wholesale stores, with plans to open 50 more.

Some analysts said the cost of the Flipkart deal makes sense if the startup eventually becomes a publicly traded company, as its founders have suggested. That "helps explain the massive amount of money that Walmart paid for it," said Bryan Gildenberg, an analyst at Kantar Consulting. "As long as e-commerce companies continue to outperform in the market, it is easy to imagine that Flipkart will eventually be valued at much more than $16 billion," he said.

Flipkart, which was founded in 2007, reported sales of $4.6 billion in the fiscal year ended March 31, Walmart said. For the previous year, revenue was $2.9 billion, and the company had a loss of $1.3 billion.

"It's got scale, it's got growth, but it's also got a great management team," Judith McKenna, chief executive of Walmart International, said in an interview. "This is about the growth strategy the team has been clear about for some time," focusing on Walmart's core North American market, along with high-growth areas in China and India, she said. Last week Walmart sold control of U.K. chain ASDA to J Sainsbury PLC, and, according to people familiar with the matter, it is in talks to sell a majority stake in its Brazilian operations.

SoftBank Group Corp. founder and CEO Masayoshi Son said at a news conference Wednesday in Tokyo that the company's $2.5 billion investment in Flipkart would be worth $4 billion after the deal. SoftBank is selling that stake, a person familiar with the matter said. eBay Inc. also said Wednesday it would sell its stake in the firm for around $1.1 billion and end Flipkart's license to use the eBay brand in India. Instead, eBay plans to start its own site in the country.

Alphabet Inc.'s Google has discussed joining Walmart's investment in Flipkart, according to people familiar with the talks. "We continue to have discussion with other potential investors, but it's too early to say" how those will turn out, Ms. McKenna said Wednesday. Walmart's investment stake could move lower if those deals are completed, the company said in a release.

--Douglas MacMillan, Mayumi Negishi and Newley Purnell contributed to this article.

Write to Sarah Nassauer at sarah.nassauer@wsj.com and Corinne Abrams at corinne.abrams@wsj.com

(END) Dow Jones Newswires

May 10, 2018 02:47 ET (06:47 GMT)