'Walmart can infuse $3 bn in Flipkart'

Gwen Vasquez
May 14, 2018

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 Dollars 2 billion cash in the company and buying some of Flipkart investors' stake for USD 14 billion. The IPO should be done at no less a valuation than that at which Walmart invested in the Indian e-commerce firm, the filing said. "No termination fee would be payable if the share issuance agreement or the share purchase agreement were terminated", Walmart said in the filing.

Walmart notes that it may request Flipkart to issue additional shares with an aggregate purchase price of up to $3 billion, anytime in one year after the transaction close.

U.S. retail giant Walmart is looking to retain Flipkart co-founder Binny Bansal and other minority investors such as Tiger Global for at least four years, promising that it will protect the valuation of their shareholding and offer them the potential upside of taking the company public.

That deal could be sealed before the close of the Walmart-Flipkart transaction or immediately after, a source told Reuters, declining to be named as the talks are private.

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.

In addition, it said that it could recycle or exchange Flipkart's chief executive as well as other vital executives of all band businesses in consultation with Bansal and the plank.

Walmart noted that the board may be increased to nine directors at any time, with the additional director being appointed by Walmart with the majority approval of Flipkart directors and unaffiliated with Walmart.

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The logo of Flipkart is seen on the company's office in Bengaluru.

The minority shareholders of Flipkart will be able to exercise a conditional right of veto over "specified decisions relating to Flipkart's business and activities", the filing said but did not spell out the details. Post which the USA retailer's shareholding is likely to cross 85%. "When viewed in tandem with the recently-announced sale of a majority stake in Asda, is indicative of Walmart's long-standing strategy of shifting resources into higher growth potential markets and segments when opportune".

For Walmart, the acquisition opens a new front in its battle with Amazon, which had expressed interest in making a competing offer for a stake.

Following the acquisition, all significant stakeholders in the Indian online retail giant like Naspers, venture fund Accel Partners and eBay had confirmed they were selling their stocks to Walmart. The right of first refusal for the minority shareholders will expire if Walmart owns 85 per cent of the outstanding Flipkart shares. "If the drag along right is exercised, each minority shareholder must be entitled to sell all of its shares in the proposed transaction", the filing added.

Apart from outlining Flipkart's IPO plans, Walmart also detailed other clauses of its shareholding agreement, including the constitution of the Flipkart board for the next two years.

The Economic Times newspaper reported on Friday, citing unnamed sources, that Japan's SoftBank Group, which owns a roughly 20 percent stake in Flipkart, was rethinking its exit due to tax liabilities and because it saw further value in Flipkart.

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