Walmart Inc can invest an additional capital of $3 billion in Flipkart, anytime within a year of the completion of its transaction of buying 77% stake in the Indian online retailer, the world's largest brick-and-mortar retailer, said in a filing to the US Securities and Exchange Commission.
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.
The agreement provides for a "contemporaneous" issuance of fresh shares for an aggregate value of $2 billion and the purchase of shares held by a slate of existing shareholders for a value of $14 billion.
Walmart said it may elect to ask Flipkart to issue shares worth United States dollars 3 billion within a year of close of transaction but did not clearly say if the investment would be brought in by it or a new partner.
Walmart has already signed agreement to purchase shares worth $16 billion which is 77% of Flipkart, here's how the structure of deal looks like.
The filing also says that there are no termination fees linked to the deal.
Walmart said, "The Share Issuance Agreement and Share Purchase Agreement also contain customary termination rights for the parties, including, among others, by the Purchaser if the Transactions have not closed by March 9, 2019".More news: Warriors trounce Rockets in National Basketball Association playoff series opener
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Earlier this week, Walmart announced that it would buy 77% stake in Flipkart for $16 billion at a valuation of almost $21 billion. 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.
"As Flipkart is expected to generate meaningful losses for at least the next few years, this is clearly an investment for the future", said Charlie O'Shea, VP and Lead Retail Analyst at Moody's in commentary provided to Retail TouchPoints.
Apart from outlining Flipkart's IPO plans, Walmart also detailed other clauses of its shareholding agreement, including the constitution of the Flipkart board for the next two years.
Once Walmart owns more than 85 per cent of Flipkart, several rights of minority shareholders, including Tiger Global, Binny Bansal, Microsoft, Tencent and others, will be revoked such as their veto right to "prevent certain significant transactions or other events involving Flipkart", their right to refusal and even their "drag along" rights. Under the deal, SoftBank Group will sell the entire 20% stake it holds in Flipkart through an investment fund, less than a year after the Japanese conglomerate invested $2.5 billion in the e-Commerce giant. "The number of directors may be increased to nine at any time, appointed by Walmart with the approval of a majority of the Flipkart directors and must be unaffiliated with Walmart", read the regulatory filing.
The right of first refusal for the minority shareholders will expire if Walmart owns 85 per cent of the outstanding shares of Flipkart, it added.