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

Doug McMillon CEO of Walmart Inc. Adam Jeffery  CNBC  Getty Images

Mumbai: Walmart, which signed definitive agreements last Wednesday to acquire a 77 per cent stake in e-commerce giant Flipkart for $16 billion, has set a one-year deadline for securing all regulatory approvals. A majority of Flipkart's minority shareholders also have a right to take the company public four years after the deal is completed, at a valuation higher than what Walmart has paid in this transaction.

The filing also said the IPO would be done at no less a valuation than the deal price for the e-commerce firm.

Minority shareholders after the deal include co-founder Binny Bansal, China's Tencent Holdings ( 0700.HK ), U.S. hedge fund Tiger Global Management and Microsoft Corp ( MSFT.O ).

The deal, the biggest ever acquisition for Walmart, had valued Flipkart for more than $20 billion, according to sources.

Flipkart's board will be initially comprised of eight directors including five Walmart-appointed directors of which two directors must be unaffiliated with Walmart for at least two years after transaction close. 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.

The agreement provides for a "contemporaneous" issuance of fresh shares for an aggregate value of $2 billion and the purchase of shares held by a slate of existing shareholders for a value of $14 billion.

Walmart said, "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".

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Minority investors holding 60 percent of Flipkart's stocks "acting collectively, may necessitate Flipkart to effect an initial public offering" (IPO) 4 decades after the beginning of their Walmart Flipkart transaction, " the Bentonville, " Arkansas-based retailer said at a May 11 filing with an U.S. Securities and Exchange Commission. No termination fee would be payable by any party if the Share Issuance Agreement or the Share Purchase Agreement were terminated. However, two board appointees of Walmart will be independent members, the filing noted.

Walmart said it may elect to ask Flipkart to issue shares worth United States dollars 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.

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.

These veto rights for the minority shareholders will expire if Walmart owns 85 per cent of the outstanding shares of Flipkart.

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.

But Japan's SoftBank has not yet made a decision to sell its 20-22 per cent stake in Flipkart to Walmart, sources with direct knowledge of the development said.

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