BENGALURU: US retail giant Walmart has an option to invest an additional $3 billion in Indias largest online retailer Flipkart at the same valuation within a year of completing the acquisition of 77 per cent stake in the company, according to the companys regulatory filings with the US market regulator SEC.
The Bentonville-headquartered company said earlier this week that it will invest $16 billion in Flipkart for a 77 per cent stake making it Walmarts biggest ever acquisition and the worlds largest e-commerce deal, valuing the Bengaluru-based and Singapore-registered company at $22 billion. This includes $14 billion earmarked for purchasing shares from existing shareholders and fresh capital infusion of $2 billion in Flipkart.
If Walmart ends up investing additional $3 billion in Flipkart, its shareholding may increase by an additional 10-12 per cent, according to estimates. The right becomes important as Softbank, one of Flipkarts largest shareholders with a 20 per cent stake, has still not made a final decision to sell its stake because of tax reasons and also sees further valuation upside, as ET reported in its May 11 edition.
The filing also says that there are no termination fees linked with the transaction. A majority of Flipkarts minority shareholders also have a right to take the company for a public offering four years after the deal is completed and at a valuation higher than what Walmart has paid in this transaction.
This deal has also led to a restructuring of the Flipkarts board of directors from 10 members to 8 members. As per the filing, the Flipkart board will initially have eight directors, five of which would be appointed by Walmart. But two of the directors appointed by the US retailer would not be affiliated with Walmart for the next two years.
Two directors are expected to be appointed by minority shareholders (which include Tiger Global, Tencent, Microsoft) and one founder (Binny Bansal), who holds a 4-5 per cent stake.
“The number of directors may be increased to nine at any time, appointed by Walmart with the approval of a majority of the Flipkart directors and must be unaffiliated with Walmart,” read the regulatory filing.
Representatives of selling investors like Nasperss Oliver Rippel and Accels Subrata Mitra are expected to step down from Flipkarts board. Flipkart co-founder and executive chairman Sachin Bansal, who is selling his stake worth $1 billion, will also not be part of the board.
The deal is expected to be closed by FY19, subject to regulatory approval by the Competition Commission of India (CCI) and absence of governmental or shareholder litigation challenging the transaction, among other things, said the filing.
Once the deal closes, Walmart also has the right to appoint or replace Flipkarts chief executive officer and other key executives in consultation with board and founder, Binny Bansal. However, for now, Walmart has expressed their enthusiasm about the current leadership of now executive chairman Binny Bansal and Flipkart CEO Kalyan Krishnamurthy and other key executives.