The filing also says that the overall size of Flipkart’s employee stock option plan (ESOP) stands at 11,947,026 shares, of which Walmart is obligated to purchase 6,242,271 shares.
BENGALURU: Flipkart’s minority stakeholder Tencent has the first right to purchase any shares in the event any stakeholder in the online retailer plans to sell them to rival Chinese internet giant Alibaba, according to the share purchase agreement filed by the Indian company’s new owner Walmart with the US securities regulator.
Flipkart investors can sell shares to Alibaba only if Tencent is notified of the transaction in detail at least five business days ahead. No such deal is in the works presently. Tencent, which holds about a 5% stake in Flipkart, also owns a significant stake along with Walmart in China’s JD.com, which competes with Alibaba.
“No shareholder shall transfer any shares to Alibaba unless Tencent be given written notice of at least five days and Tencent shall have the right to purchase all of the shares,” reads the document.
The filing also says that the overall size of Flipkart’s employee stock option plan (ESOP) stands at 11,947,026 shares, of which Walmart is obligated to purchase 6,242,271 shares. This pegs the overall worth of the option pool at $1.55 billion, based on the indicated share price of the transaction at $130 apiece. Walmart will spend around $811million at this price to buy back the shares. ET reported on May 10 that Walmart was outlining over $500 million to buy shares of Flipkart employees.
The total wealth generated by the company’s ESOP pool stood at close to $2 billion.
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Flipkart has conducted at least two employee share buybacks earlier.
Walmart recently completed its $16-billion investment in Flipkart for a 77% stake after receiving clearance from India’s competition watchdog. This transaction led to the exits of multiple early and late investors in Flipkart, including the likes of Accel Partners, South Africa’s Naspers and Japan’s SoftBank.
Flipkart cofounder Sachin Bansal also exited, selling his 5.5% for about $1billion.
Binny Bansal, the other cofounder and group chief executive, is subject to a non-compete agreement for 18 months from the date his shareholding drops below 2% or he leaves the company, Walmart’s latest filing with the US Securities and Exchange Commission shows.
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Binny Bansal, if he decides to leave, cannot be associated in any manner with companies competing with Flipkart Group offerings. Walmart holds the right to appoint Flipkart’s future CEOs and CFOs. “CONDITIONS REASONABLE”
Corporate lawyers ET spoke to said that given Walmart’s majority stakeholding in Flipkart, the clauses are reasonable and fair.
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“Binny Bansal’s non-compete clause is fairly reasonable because founders or senior leadership require a cooling-down period after they terminate their employment in the company because of all the confidential information they hold,” said Anirudh Rastogi, founder of Ikigai Law. “And with respect to the Tencent-Alibaba clause, given that the two Chinese majors are going headon in multiple verticals, it is fair game that Tencent would be given the right to participate in a share sale.”
Also, Flipkart’s board, which previously consisted of 10 members, will now be restructured to no more than 9. For now, it will have eight members, of whom five will be from Walmart, as per the shareholder agreement.
Early Flipkart investor Tiger Global’s Lee Fixel will be an independent director on the company’s board.
Walmart stated in a previous SEC filing that it has an option to invest an additional $3 billion in Flipkart at the same valuation ($22-23 billion) within a year of acquiring a 77% stake in the Indian company. If Walmart ends up investing an additional $3 billion in Flipkart, its shareholding may increase to 87-89%, according to estimates. Meanwhile, several small sellers across the country continue to oppose the Walmart-Flipkart deal.
The Confederation of All India Traders (CAIT) has petitioned the National Company Law Appellate Tribunal (NCLAT) against the Competition Commission of India’s approval for the Walmart-Flipkart deal. CAIT claims that Flipkart prioritises a few sellers on its platform and that is bound to get aggravated once Walmart comes into the picture.
NCLAT issued a notice to Walmart on Friday enquiring about the business model.
