US retail biggie Walmart closes in to repurchase shares and reduce the number of investors in Flipkart to less than 50 to ensure that the deal size does not balloon.
Indian unicorn Flipkart seems to have finally thrown in the towel to US retail giant Walmart. Walmart has been in talks with Flipkart for months to acquire controlling stake in the Indian multibillion-dollar ecommerce company, which has eleven rounds of funding totalling to up to $7.3 billion.
This deal is said to be an important one as the US retailer gets set to battle rival Amazon in India, where the ecommerce market is expected to grow to $200 billion in a decade. However, was Amazon ever in the race? A source close to Sachin and Binny Bansal has revealed that Amazon actually never bid for Flipkart.
Sources say the deal is being worked out at Bentonville, Walmart’s headquarters, and the brick-and-mortar giant is figuring out regulations in Singapore, where Flipkart is registered.
It had been reported earlier that Walmart had completed due diligence on Flipkart; the US giant is said to have made a proposal to buy 51 percent or more in the company for between $10 billion and $12billion. Reports that Walmart may finalise its deal with Flipkart “as early as next week” are also doing the rounds now.
According to sources, Sachin Bansal and Binny Bansal are tipped to stay on in the company. One of them will consolidate his shares while the other plans to sell a portion. Walmart is reportedly also planning to retain some other senior leaders. A major private equity investor is bargaining hard to remain at the helm of things in Flipkart. Could it be Tiger Global? Company insiders reveal that Japan’s Softbank is exiting this round.
For those who read, in the news, that there were Chinese investors, in Flipkart, they must know that there were none, other than Tencent, which owned 6 percent.
So, what is Walmart trying to do? Why the delay in the purchase? It is negotiating hard with smaller shareholders to agree upon a price and exit Flipkart as soon as possible. Why? Otherwise the deal to buy Flipkart outright will be stalled by smaller investors.
Singapore re-purchase regulations say if the total number of shareholders are over 50 then an open offer at a price (decided upon) should be made to all investors, which Walmart has to quickly comply with if it does not bring down the shareholding to less than 50. This can increase the deal size of Flipkart to more than the $20 billion acquisition price that the media keeps talking about.
The regulation: “It applies to corporations with a primary listing of their equity securities, business trusts with a primary listing of their units in Singapore, and REITs. While the Code is drafted with listed public companies, listed registered business trusts, and REITs in mind, unlisted public companies and unlisted registered business trusts with more than 50 shareholders or unit holders, as the case may be, and net tangible assets of $5 million or more must also observe the letter and spirit of the General Principles and Rules, wherever this is possible and appropriate. The Code does not apply to takeovers or mergers of other unlisted public companies and unlisted business trusts, or private companies. The Code applies to all offerers, whether they are natural persons (be they resident in Singapore or not and whether citizens of Singapore or not), corporations or bodies unincorporate (be they incorporated or carrying on business in Singapore or not); and extends to acts done or omitted to be done in and outside Singapore.”
Sources say Walmart is pacing up the deal as it is in no mode to let the Indian ecommerce company go to others. Morgan Stanley predicts that the Indian ecommerce industry is $33 billion size today and is expected to grow to $200 billion in size by 2025. No wonder Walmart is unwilling to give up the slice of pie it almost has in its hand!