Flipkart Sets Aside $400 Mn For Buyback From Minority Shareholders

While the Flipkart-Walmart deal inches closer, the ecommerce giant has set aside $400 Mn to buyback shares of minority investors in an attempt to revamp itself as a private limited company in Singapore.
 
As per reports, in Singapore, Flipkart is registered as a public company with nearly 145 entities as shareholders and it is, therefore, trying to narrow it down to 50, which is the maximum limit for a private limited company in India as well as Singapore.
 
As per a lawyer ET spoked to, “If a strategic investor is coming in, it would be easier for the investor if the number of shareholders is below 50.” The major reason for this is being credited to the huge compliances of public companies, unlike private companies.
The proposed investment deal of Walmart will include a provision to set up a chain of retail stores across the country. Walmart already has a strong presence in the country through its B2B arm, which currently boasts a network of 21 Best Price Modern Wholesale stores.
The partnership with Walmart, therefore, would not only increase Flipkart’s cash balance significantly but would also enable it to expand its footprint in the offline retail segment.
 
If the deal materialises, Flipkart will be able to procure grocery and consumer goods directly from Walmart’s wholesale stores, which would, in turn, ensure better delivery speed and product availability.
Walmart is likely to gain about three to four seats on the 10-member board of homegrown ecommerce unicorn Flipkart, which will continue to run as an independent company if the deal goes through.
Google’s parent Alphabet is expected to take a stake in Flipkart for nearly $1-2 Bn. As per reports, the investment from Alphabet will come after the Walmart acquisition, expected to be announced shortly.
In April, Walmart completed its due diligence and also reached to an agreement with Flipkart’s existing investors viz New York-based investment firm Tiger Global Management, South African media conglomerate Naspers, venture capital firm Accel, China’s Tencent Holdings and Japanese Conglomerate Softbank for its 23.6% stake.
Also, at the same time, the company is planning retention of top employees. Myntra CEO Ananth Narayanan and PhonePe co-founders Sameer Nigam and Rahul Chari are expected to continue in their roles while it also tries to get Flipkart CEO Kalyan Krishnamurthy to continue in his role. At the same time, Walmart has plans to give a bigger role to Flipkart executive chairman Sachin Bansal and wants him to be more involved in running the company.
Beyond the reluctance of Softbank to part with its stake for a ‘low price’, the deal also saw a rival offer from Amazon and also a breakup fee of $1-2 Bn offered.
A major concern also remained with the eBay-Flipkart deal, under which eBay signed a four-year exclusive “commercial arrangement” following which “eBay also has the right to take back control of the eBay India brand name should Flipkart get acquired”.
India’s ecommerce industry is expected to touch $200 Bn by 2026, as per a report by Morgan Stanley. The market reached $33 Bn registering a 19.1% growth in 2016-2017, as per the Indian government’s Economic Survey 2018.
 
With Flipkart involved in legal compliances to ease out the investment, the deal appears to be close enough to completion. However, the completion of the deal still remains a huge doubt due to the lessons learnt from the incomplete deals that happened in the past. But given the sizes of the companies involved, a due diligence from all the participants involved is necessary as it is, to avoid any future hiccups.
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