US retailer Walmart has the option to get additional USD 3 billion investments into Flipkart within a year of completing about USD 16 billion deal and may get India’s largest online retailer listed in as early as four years, as per a regulatory filing.
Walmart, in a US Securities and Exchange Commission (SEC) filing, gave details of its agreement to take about 77 per cent stake in Flipkart through infusing USD 2 billion cash in the company and buying some of Flipkart investors’ stake for USD 14 billion.
Walmart said it may elect to ask Flipkart to issue shares worth USD 3 billion within a year of close of transaction but did not clearly say if the investment would be brought in by it or a new partner.
In the run up to deal, it was speculated that Walmart may partner Google parent Alphabet for the Flipkart acquisition. Alphabet was to get 15 per cent.
At USD 20.7 billion valuation, the USD 3 billion investment can get less than 15 per cent stake.
At any time after the closing of the transactions and on or before the first anniversary of the closing, the purchaser, or any of its affiliates, may request that Flipkart issue additional ordinary shares with an aggregate purchase price of up to USD 3 billion, it said.
Flipkart board will initially have eight directors: five Walmart-appointed, two appointed by certain minority shareholders and one founder.
The US retail major will initially appoint five directors on the board of the Indian company and may appoint an additional director in future.
Flipkart board will have co-founder Binny Bansal, who has decided to stay on, as well as two directors from other minority shareholders that includes Tencent Holding, Tiger Global and Microsoft Corp.
Walmart said it could appoint or replace CEO and other key executives of Flipkart in consultation with Bansal and the board.
Walmart may appoint or replace the chief executive officer and other principal executives of the Flipkart group of companies, subject to certain consultation rights of the board and the founder, Walmart said in the filing.
On May 9 — the day the mega deal was announced — Walmart had said it supports Flipkart’s ambition to transition into a publicly-listed entity in future. And in the latest SEC filing, it has, for the very first time, talked about the potential listing timelines.
Pursuant to a registration rights agreement to be entered into concurrently with the shareholders agreement, holders of 60 per cent of the Flipkart shares held by the minority shareholders, acting together, may require Flipkart to effect an initial public offering following the fourth anniversary of closing of the transactions,” Walmart said.
This would be done at a valuation no less than that paid by Walmart under the share issuance agreement. The filing also says that there are no termination fees linked to the deal.
“Shareholders agreement would expire upon the consummation of the IPO, whether initiated by the board or the minority stockholders,” it added.
The Share Issuance Agreement and Share Purchase Agreement also contain customary termination rights for the parties, including, among others, by the Purchaser if the Transactions have not closed by March 9, 2019. No termination fee would be payable by any party if the Share Issuance Agreement or the Share Purchase Agreement were terminated, it said.
Last week, all significant shareholders in Flipkart like Naspers, venture fund Accel Partners and eBay had confirmed they were selling their shares to Walmart.
But Japan’s SoftBank has not yet decided to sell its 20-22 per cent stake in Flipkart to Walmart, sources with direct knowledge of the development said.
SoftBank’s Masayoshi Son will take a call in the next 7-10 days on whether to exit India’s biggest online retailer or say invested for some more time, they said adding that factors that hold key to the decision include the tax SoftBank has to pay on profits it would earn from stake sale amongst other considerations.
In case, SoftBank decides not to sell, Walmart would be left with about 55 per cent of Flipkart.