Walmart announced earlier this week that it will pay $16 billion for a roughly 77 percent stake in Flipkart in what is the USA retail giant's largest-ever deal and to beat the foremost rival Amazon.com Inc (AMZN.O) in a key growth market.
The filing said that the IPO must not be done below the value which Walmart invested in the Indian e-commerce firm.
The deal now awaits clearance from India's anti-trust regulator and is expected to close later this year.
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.
The remaining 23% stake in Flipkart will be held by minority shareholders including co-founder and group chief executive officer Binny Bansal, Chinese Internet conglomerate Tencent, investment firm Tiger Global and software firm Microsoft Corp. Minority shareholders holding 60% of Flipkart's shares "acting together, may require Flipkart to effect an initial public offering following the fourth anniversary of the closing of the transactions", said the retailer. But two of the directors appointed by the U.S. retailer would not be affiliated with Walmart for the next two years.
"The share issuance agreement and the share purchase agreement also contain customary termination rights for the parties including, among others, by the Purchaser (Walmart) if the transactions have not closed by March 9, 2019". In fact, the Beast of Bentonville had also said that it hoped to meld Flipkart's numbers into the revenues of Walmart's global operations by the end of the second quarter and had suggested that might impact the company's earnings per share by up to 30 U.S. cents.
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As part of the deal, Walmart will initially appoint five directors to Flipkart's board, two directors will be named by minority shareholders while Bansal will take one board seat, according to the filing.
Walmart also provided some clarity on its plans to come out with an initial public offering (IPO) for Flipkart.
Binny Bansal, co-founder and group CEO, too continues in his role even as Sachin Bansal, co-founder and executive chairman chose to quit the board and the company.
The Bentonville, Arkansas-based retailer and its appointed directors will have veto rights over specific decisions related to Flipkart's business and activities.
"Shareholders agreement would expire upon the consummation of the IPO, whether initiated by the board or the minority stockholders", it added. Here's what will happen in Flipkartm, if Walmart acquires 85% stake.
Following the acquisition, all significant stakeholders in the Indian online retail giant like Naspers, venture fund Accel Partners and eBay had confirmed they were selling their stocks to Walmart. These rights will, however, expire if Walmart increases its stake to 85% or more, the retail giant noted in the filing. 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. "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.