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Walmart’s deal to buy Flipkart came with an interesting caveat

Gabby Abir      -

Walmart’s deal to buy Flipkart came with an interesting caveat

Retail giant Walmart, which earlier this week announced that it’s paying $16 billion for a 77 percent stake in the Indian e-commerce company, Flipkart Group, could have to take Flipkart public within four years, shows a public filing that was reported on earlier by Reuters.

Specifically, the filing states that, “acting together,” holders of 60 percent of the Flipkart shares held by the company’s minority shareholders, may require Flipkart to stage an IPO following the fourth anniversary of the deal’s official close — and at a valuation that’s “no less” than that paid by Walmart under its current agreement, which is $20.8 billion.

The caveat is a highly unusual one as far as we can tell — an apparent insurance policy for earlier investors who were concerned about giving away too much upside by selling so many of their shares now to Walmart.

Some of the company’s minority shareholders following Flipkart’s tie-up with Walmart include Tencent Holdings, Tiger Global Management, Microsoft, and company cofounder Binny Bansal, who, according to the Economic Times, sold $104 million in shares but held on to a 4.2 percent stake. (Bansal is staying on with the company as a group CEO while his cofounder, Sachin Bansal, is leaving with at least $1 billion, according to regional outlets. Some are more newly suggesting he didn’t have much choice in the matter.)

Another of Walmart’s minority shareholders, very notably, is SoftBank, whose CEO, Masayoshi Son, preempted Walmart itself by announcing the deal to reporters and analysts last Monday while discussing SoftBank’s quarterly results.

At the time, Son suggested that SoftBank, which invested through its Vision Fund, would see a sizable return on its initial investment of $2.5 billion. (Told while still discussing SoftBank’s earnings that no announcement had been made by Walmart, he uttered the equivalent of: “Oops. I already said it.”)

Now the Economic Times is reporting that SoftBank might not be selling those shares, which it acquired last year, after all. According to its sources, the Japanese giant is “still figuring out the tax liability that would arise if it sold its shares less than a year after investing in Flipkart. Further, it sees a significant upside potential in Flipkart.”

SoftBank owns 21 percent of the company.

Currently, both Amazon and Flipkart control a respective 35 percent of India’s e-commerce market, which is estimated to be a $30 billion market today but poised to grow into a $200 billion market within the next 10 years.

Amazon had reportedly also offered to buy a stake in Flipkart before Walmart announced its own pact with the company, a deal that is expected to close later this year.

SoftBank is known for maneuvering aggressively to get what it wants. When last year, it wasn’t clear Vision Fund would be able to buy as many shares as it wanted in the car-hailing company Uber, it threatened publicly to invest in Lyft, Uber’s chief rival in the United States. SoftBank reportedly employed similarly heavy-handed tactics when it was looking to invest in the dog-walking service Wag, into which it sunk $300 million in January.