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 a move to take on arch rival Amazon.com Inc ( AMZN.O ) in a key growth market. The top-up from Walmart, if made will be at the same valuation of around $21 billion that was ascribed to Flipkart, the filing said.
This would be done at a valuation no less than that paid by Walmart under the share issuance agreement.
Shares of Walmart fell 4 percent in afternoon trade after opening at a seven-month low as the company warned it expects the deal to shave fiscal 2019 earnings by 25-30 cents per share if it closes before the end of the second quarter. This included $14 billion earmarked for purchasing shares from existing shareholders and fresh capital infusion of $2 billion in Flipkart.
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 ). 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. For at least two years following closing of the transactions, two of the Walmart-appointed directors won't be affiliated with Walmart.
The filing also says that there are no termination fees linked with the transaction.
As a portion of the bargain, wal mart will initially appoint five supervisors to Flipkart's plank, two supervisors will probably be appointed by minority investors whilst Bansal will take a single plank seat, as stated by the filing.More news: CARLTON: A time to say thanks to mothers
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Interestingly, Walmart also has the right to appoint or replace the Chief executive or other principal executives of the Flipkart group of companies, subject to consultation rights of the Flipkart board and the founder Binny Bansal.
Walmart said it may, in future, appoint a sixth board member with the approval of the majority of the Flipkart directors. 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 USA cents.
Furthermore, Walmart has shed some light on its plans to come out with an initial public offering (IPO) for Flipkart.
The remaining positions will be taken up by Flipkart founder Binny Bansal and two remaining directors to be appointed by certain minority shareholders.
The veto rights for the Minority Shareholders will expire if Walmart owns 85% of the outstanding shares of Flipkart. "When viewed in tandem with the recently-announced sale of a majority stake in Asda, is indicative of Walmart's long-standing strategy of shifting resources into higher growth potential markets and segments when opportune". Walmart will still hold a 42% stake in the company, but this marks a retreat from the United Kingdom market in the face of fierce competition from Tesco, Morrisons, Aldi and Lidl. These rights will, however, expire if Walmart increases its stake to 85% or more, the retail giant noted in the filing. If the drag along right is exercised, each Minority Shareholder must be entitled to sell all of its shares in the proposed transaction.