U.S. retail giant Walmart has an option to invest an additional $3 billion in India's largest online retailer Flipkart at the same valuation within a year of completing the acquisition of 77% stake in the company, according to the company's regulatory filings with the USA market regulator, the Securities and Exchange Commission.
It also said it could appoint or replace Flipkart's chief executive and other key executives of group companies in consultation with Bansal and the board. "Retail and e-commerce are cash-hungry businesses and for further growth [and return on investment]., Walmart does need to invest". The Flipkart share purchase deal is likely to close by 9 March 2019. With regard to the board composition, for now it will have eight directors down from ten-out of which five will be appointed by Walmart; while two will be representatives of minority shareholders Tiger Global and Chinese internet major Tencent, along with Binny Bansal.
Walmart also mentioned no celebration would be responsible to pay a termination fee if a share issuance or invest in arrangement with Flipkart were also terminated. 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.
"Pursuant to a Registration Rights Agreement to be entered into concurrently with the shareholders agreement, holders of 60 per cent 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", Walmart Inc said in a regulatory filing with the US Securities and Exchange Commission. For at least two years following closing of the transactions, two of the Walmart-appointed directors won't be affiliated with Walmart.
"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.
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Earlier this week, ET reported that Steuart Walton, grandson of Walmart founder Sam Walton, Judith McKenna, president at Walmart International, and Dirk Van den Berghe, regional CEO of Walmart Canada and Asia, will join the Flipkart board.
"Shareholders agreement would expire upon the consummation of the IPO, whether initiated by the board or the minority stockholders", it added.
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. 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.
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.
In certain situations, Walmart and a percentage of Minority Shareholders may exercise a "drag along" right to cause the remaining Minority Shareholders to sell all or a portion of their shares in a sale of Flipkart.