Walmart can invest $3 billion more in Flipkart at same valuation

Walmart can invest $3 billion more in Flipkart at same valuation

"Immediately after the closing of the transactions, all Flipkart preference shares will convert into ordinary shares", Walmart said. This included $14 billion earmarked for purchasing shares from existing shareholders and fresh capital infusion of $2 billion in Flipkart. Walmart said the transaction to buy shares in Flipkart should close by March 9, 2019. Flipkart may opt for an initial public offering after four years of closing the Walmart deal at a valuation no less than what was paid by Walmart. Walmart had reported an EPS of $3.28 in Fiscal 2018.

If Walmart ends up investing an additional $3 billion in Flipkart, its shareholding may increase by an additional 10-12%, according to estimates.

Walmart also provided some clarity on its plans to come out with an initial public offering (IPO) for Flipkart.

SoftBank had invested Dollars 2.5 billion in Flipkart and exiting the company would fetch it up to USD 4.5 billion.

This deal has also led to a restructuring of the Flipkart's board of directors from 10 members to eight. For at least two years two of the Walmart-appointed directors won't be affiliated with the company. According to the filing, the Flipkart board will initially have eight directors, five of which would be appointed by Walmart.

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The Bentonville, Arkansas-based retailer and its appointed directors will have veto rights over specific decisions related to Flipkart's business and activities. This suggests that minority shareholders, with a combined stake of 13.8 per cent of the overall equity of Flipkart, may be able to block some transactions.

Similarly, minority investors holding 60% of Flipkart shares and acting together will have veto rights to prevent significant transactions involving Flipkart while investors holding 40% shares will have veto rights to prevent certain transactions between Flipkart and Walmart.

"Shareholders agreement would expire upon the consummation of the IPO, whether initiated by the board or the minority stockholders", it added. "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.

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. "If the drag along right is exercised, each minority shareholder must be entitled to sell all of its shares in the proposed transaction", the filing added. This could take Walmart's stake to over 85 per cent.

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.

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