Sunday, 19 August, 2018

Investors may force Walmart to bring Flipkart IPO within next four years

Walmart has a lot riding on Flipkart SoftBank undecided on exiting Flipkart
Elsie Buchanan | 13 May, 2018, 15:10

Indian e-commerce company Flipkart might go for an initial public offering (IPO) in as early as four years if minority investors holding 60% of its shares wish so, said American retailer Walmart in a filing to the United States regulator.

In the run up to deal, it was speculated that Walmart may partner Google parent Alphabet for the Flipkart acquisition.

A statement issued by Walmart that day identified Flipkart co-founder Binny Bansal, Tencent Holdings Ltd, Tiger Global Management LLC and Microsoft Corp as the investors who would hold the remaining 23 per cent, implying SoftBank had agreed to sell its 20-22 per cent stake. The deal's terms give investors controlling as little as 14 percent of Flipkart's shares the right to require Walmart to take the Indian company public in as soon as four years, according to the filing.

It also said it could appoint or replace Flipkart's chief executive and other key executives of group companies in consultation with Bansal and the board. "No termination fee would be payable if the share issuance agreement or the share purchase agreement were terminated", Walmart said in the filing.

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.

Walmart said it can, in future, reconstruct a board member together with the approval of the majority of those Flipkart supervisors.

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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. Walmart's additional share purchase, if made, will be at the same price at which it made the initial investment, the filing said.

So far, Walmart has not revealed the price at which it bought Flipkart stake, and different tranches may have been purchased at different prices.

The right of first refusal for the minority shareholders will expire if Walmart owns 85 per cent of the outstanding shares of Flipkart, it added.

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.

The Shareholders Agreement would expire upon the consummation of the IPO, whether initiated by the Board or the Minority Stockholders. In fact, the Beast of Bentonville had also said that it hoped to meld Flipkart's numbers into the revenues of Walmart's worldwide operations by the end of the second quarter and had suggested that might impact the company's earnings per share by up to 30 United States cents. If the drag along right is exercised, each Minority Shareholder must be entitled to sell all of its shares in the proposed transaction.

SoftBank's Masayoshi Son will take a call in the next 7-10 days on whether to exit India's biggest online retailer or say invested for some more time, they said.

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