Walmart may launch Flipkart IPO in as early as 4 years

Javier Stokes
May 15, 2018

United States retail giant Walmart has an option to invest an additional $3 billion in India's largest online retailer Flipkart at the same valuation within a year of completing the acquisition of 77% stake in the company, according to the company's regulatory filings with the USA market regulator, the Securities and Exchange Commission.

"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.

Walmart or its components could question Flipkart to issue new common shares of up to 3 billion until the closing of their "transactions and before or on the very first anniversary of their final", it also said. For now, Walmart is pumping $2 billion in cash and purchasing shares worth $14 billion from Flipkart's existing shareholders, the SEC filing said.

The filing also says that there are no termination fees linked to the deal.

The deal includes "customary termination rights for the parties, including, among others, by Walmart if the transactions have not closed by March 9, 2019".

In a statement, Walmart said it would support Flipkart's transition into a publicly-listed, majority owned subsidiary in the future.

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"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.

The remaining positions will be taken up by Flipkart founder Binny Bansal and two remaining directors to be appointed by certain minority shareholders.

Earlier this week, Walmart announced that it would buy 77% stake in Flipkart for $16 billion at a valuation of almost $21 billion.

Flipkart's board of directors, it said, would initially have eight members, five of which would be appointed by Walmart, two by certain minority shareholders, and one would be Binny Bansal. Flipkart's other co-founder Sachin Bansal had exited the company earlier this week, by selling his 5.5% stake for about $1 billion. Walmart said in the filing that it 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. We reported in our May 12 edition that, both Walmart and SoftBank are set to decide on a time to execute the transaction at a predetermined price and time, so that SoftBank can avoid short-term capital gains tax on the sale of shares.

The Shareholders Agreement would expire upon the consummation of the IPO, whether initiated by the Board or the Minority Stockholders. Under the deal, SoftBank Group will sell the entire 20% stake it holds in Flipkart through an investment fund, less than a year after the Japanese conglomerate invested $2.5 billion in the e-Commerce giant.

It said among other transfer restrictions and subject to certain exceptions, transfers of Flipkart shares will be subject to a right of first refusal exercisable by Walmart and other significant minority shareholders, and in certain situations, co-sale rights. These rights will, however, expire if Walmart increases its stake to 85% or more, the retail giant noted in the filing.

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