Walmart can make a $3 billion top-up in Flipkart at same valuation

Ann Santiago
May 15, 2018

On Saturday, Walmart Inc (WMT.N) said in a filing with a USA regulator that it may India's online store, Flipkart public in as early as four years, detailing for the first time a potential listing timeline for Walmart's largest-ever acquisition.

"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 at a valuation no less than that paid by Walmart under the share issuance agreement", the filing read.

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 Dollars 3 billion, it said.

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.

Earlier this week, ET reported that Steuart Walton, grandson of Walmart founder Sam Walton, Judith McKenna, president at Walmart International, and Dirk Van den Berghe, regional CEO of Walmart Canada and Asia, will join the Flipkart board. Of the five directors Walmart can appoint to Flipkart's board, two must be unaffiliated to the Bentonville, Arkansas-based company.

The filing also says that there are no termination fees linked with the transaction.

Another clause that Walmart has put into the agreement is that it has the right to invest an additional $3 billion into Flipkart at the same valuation of its initial purchase.

"These additional ordinary shares will be issued at the same price per share as the ordinary shares issued in the share issuance, subject to adjustment for any stock splits, stock dividends or similar transactions", the filing said.

Devangshu Dutta, chief executive of retail consultancy Third Eyesight, said the infusion in itself is a significant measure of confidence that Walmart has, "that Flipkart is something which needs to be supported not only in terms of integrating it into the Walmart business but also as an independent [business]", said Mr. Dutta. The clause will help Walmart persuade Binny and Flipkart CEO Kalyan Krishnamurthy, who was a top executive at Tiger Global, to stay with the firm for a period of at least four years. These rights will, however, expire if Walmart increases its stake to 85% or more, the retail giant noted in the filing.

The Shareholders Agreement would expire upon the consummation of the IPO, whether initiated by the Board or the Minority Stockholders. Sources, however, said SoftBank is yet to take a call on exiting Flipkart.The factors that hold key to the decision include the tax SoftBank has to pay on profits it would earn from such share sale. Also, at this present juncture, Walmart's filing is vital when Flipkart's main stakeholder, Tokyo-based SoftBank, is yet to make up its mind about the sale of its shares.

If Walmart transfers a sufficient number of Flipkart shares which gives rise to a situation that it no longer controls a majority of the Flipkart shares, then each minority shareholder will also be entitled to transfer all of its holding to the proposed buyer of Walmart's holding.

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