Walmart is going to give its new acquisition in India lots of firepower to go head-to-head against rival Amazon.
The US retailer could invest an additional $3 billion into Flipkart—aside from the $16 billion it is already spending on buying it—within a year of closing the deal, it said in a filing with the US markets regulator, the Securities and Exchange Commission (SEC), on May 09.
Walmart’s big bucks could go a long way in Flipkart’s fight against Amazon in one of the world’s fastest-growing e-commerce markets. Amazon has so far committed $5 billion to India—$2 billion announced in June 2014, and $3 billion in June 2016.
In the filing, Walmart shared some additional nuances of the deal, including its plans to take Flipkart public. Here are the details:
Walmart’s Flipkart acquisition, the world’s largest e-commerce deal, is an all-cash transaction, according to the SEC filing. As part of the agreement, Walmart will purchase new shares of Flipkart worth $2 billion and buy a stake worth $14 billion from the firm’s existing investors.
In addition, within the first year of the closing of the deal, Walmart may infuse another $3 billion into Flipkart. This investment will be made by Walmart purchasing new shares of Flipkart at the same price as the acquisition transaction.
The deal, which still needs regulatory approvals in India, has to close by March 09, 2019, failing which it could be terminated, as per the SEC filing. Although India allows foreign direct investment in e-commerce, at least two trade bodies in the country have already voiced opposition to Walmart’s latest move.
On May 09, the Swadeshi Jagran Manch (SJM) wrote a letter to prime minister Narendra Modi opposing the deal. ”Walmart is using the e-commerce route to circumvent the rules to attack (the) Indian market,” the organisation said. The SJM is an affiliate of the Hindu nationalist association, Rashtriya Swayamsevak Sangh (RSS), which is the ideological mothership of the ruling Bharatiya Janata Party.
On May 12, Tamil Nadu Vanigar Sangankalin Peramaippu, a federation of traders in Tamil Nadu, warned the government of massive country-wide protests if the deal between Walmart-Flipkart was approved.
Flipkart’s new board will have eight members, including five directors appointed by Walmart, putting the American retailer in the driver’s seat. Walmart founder Sam Walton’s grandson, Steuart Walton, is reportedly likely to join Flipkart’s board of directors.
Other minority shareholders will get to nominate two directors, aside from co-founder Binny Bansal who will continue to be one of the board members.
In addition, Walmart will have a veto right ”over specified decisions relating to Flipkart’s business and activities,” the SEC filing said, without sharing more details.
The Arkansas-headquartered company will also have the final word on the appointment or removal of the top executives at Flipkart and its group companies, PhonePe and eKart. “Walmart may appoint or replace the chief executive officer and other principal executives of the Flipkart group of companies, subject to certain consultation rights of the board and the founder,” the SEC filing said.
Walmart has already revealed plans for an initial public offering (IPO) for Flipkart, within four years of the completion of this acquisition. The IPO will be done “at a valuation no less than that paid by Walmart” for this buyout, the SEC filing said.
There has been much speculation over Flipkart’s listing on the stock exchanges for years now. In 2015, the company’s then CFO Sanjay Baweja had said Flipkart had no plans to list on stock exchanges for at least two years because the company was not prepared to face the scrutiny that listed companies are subjected to. But in January 2017, Flipkart’s board had reportedly decided to take the company public within two years. Now, that decision rests in the hands of its new owner, Walmart.