Walmart may come up with IPO for Flipkart in 4 years

Doug McMillon CEO of Walmart Inc. Adam Jeffery  CNBC  Getty Images

Another clause that Walmart has put into the agreement is that it has the right to invest an additional $3 billion into Flipkart at the same valuation of its initial purchase.

Walmart wouldn't be the only party in the deal - Google parent Alphabet could take a minority stake in Flipkart valued at $1 billion to $2 billion.

Flipkart's board will be initially comprised of eight directors including five Walmart-appointed directors of which two directors must be unaffiliated with Walmart for at least two years after transaction close.

Walmart will also have right to 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.

"Immediately after the closing of the transactions, all Flipkart preference shares will convert into ordinary shares", Walmart said.

The filing also says that there are no termination fees linked with the transaction.

Walmart notes that it may request Flipkart to issue additional shares with an aggregate purchase price of up to $3 billion, anytime in one year after the transaction close.

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The logo of Flipkart is seen on the company's office in Bengaluru.

Pursuant to a Registration Rights Agreement to be entered into concurrently with the Shareholders Agreement, holders of 60% of the Flipkart shares held by the Minority Shareholders, acting together, may require Flipkart to effect an initial public offering following the fourth anniversary of closing of the Transactions at a valuation no less than that paid by Walmart under the Share Issuance Agreement, subject to the satisfaction of certain other conditions regarding such offering (the "IPO").

The remainder will be held by existing shareholders, including Flipkart co-founder Binny Bansal, China's Tencent Holdings Ltd (0700.HK), Tiger Global Management and Microsoft Corp (MSFT.O), the company said.

As per SEC filing, Walmart may take Flipkart public in four years.

"While the immediate focus will be on serving customers and growing the business, Walmart supports Flipkart's ambition to transition into a publicly-listed, majority-owned subsidiary in the future", Bentonville, Arkansas-based Walmart said Wednesday, before details of the arrangements were disclosed in the filing late Friday. Post which the U.S. retailer's shareholding is likely to cross 85%.

Walmart and other significant minority shareholders - it didn't spell out who - will also have the right of first refusal on transfer of Flipkart shares along with co-sale rights in certain situations. 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.

In case, SoftBank decides not to sell, Walmart would be left with about 55 per cent of Flipkart. If this happens, then Walmart's shareholding in the Indian e-tailer could go up by a further 12-14 per cent, pushing its shareholding beyond 85 per cent. "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. Sources, however, said SoftBank is yet to take a call on exiting Flipkart.The factors that hold key to the decision include the tax SoftBank has to pay on profits it would earn from such share sale.

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