Flipkart buys back shares worth $350 million to convert into pvt ltd firm ahead of potential deal with Amazon or Walmart

Mumbai: Online marketplace Flipkart has bought back $350 million worth of shares from its investors as it seeks to convert its Singapore-incorporated company to a private limited firm, changing its name to Flipkart Pte Ltd,  in a move that could ease the way in for a new strategic investor. Stakeholders in a private limited company are usually bound by a contract and have more flexibility than in a public company.

Flipkart Ltd purchased shares for $350.5 million from some of its investors including Shekhar Kirani of Accel, SoftBank executive Deep Nishar’s family trust, IDG Ventures and a host of pension funds, according to May 3 regulatory filings from Singapore’s Accounting and Corporate Regulatory Authority, sourced by business intelligence platform paper.vc.

“Typically strategic investors don’t like to deal with multiple shareholders because it just becomes more cumbersome,” a senior lawyer told Reuters. “So they very often ask companies to clean up the cap table or consolidate small shareholders.”

Sources said all major investors in Flipkart, including SoftBank of Japan, are more or less on board with Walmart's purchase and the deal could be announced in the coming days. Walmart is likely to buy stakes of multiple Flipkart investors, including that of Tiger Global Management and Softbank to end up with at least 60 percent holding, they said.

The deal with Walmart, involving primary and secondary shares, is expected to value Flipkart at about $20 billion, they added.

One of the persons said possible scrutiny from the Competition Commission of India (CCI) as well as risks related to sharing competitive data as part of due diligence were some of the reasons for Flipkart investors and management favouring a deal with Walmart and not Amazon, even though the rival's bid was slightly higher, a PTI report said.

Amazon is believed to have offered Flipkart a higher valuation of about $22 billion, along with a break up fee of $2 billion, compared to Walmart's $18-20 billion valuation of the Bengaluru-based company.

 Flipkart buys back shares worth 0 million to convert into pvt ltd firm ahead of potential deal with Amazon or Walmart

Flipkart. Representational image. Reuters

Emails sent to Flipkart and Walmart did not elicit any response.

"We do not comment on ongoing discussions and/or speculation", SoftBank said in an emailed statement.

Flipkart's major investors -- Tiger Global Management, Accel and Naspers are expected to sell all their shares to the Arkansas-based retailer.

India is a critical market for both Walmart and Amazon and a deal with Flipkart would help either player in consolidating their position in the booming e-commerce market here.

According to Greyhound Research Chief Analyst and CEO Sanchit Vir Gogia, Walmart adding Flipkart to its kitty will act like a shot-in-the-arm and give it a significant up against ace competition, Amazon.

"Flipkart shareholders also stand to gain a better outcome on their returns (as part of deal with Walmart) and the founders and key management get a bigger stake in the game given higher reliance on them to successfully run and grow the commerce business," he added.

Last year, SoftBank Vision Fund had pumped in an estimated $2.5 billion in Flipkart for about 20 percent stake in the company. The Bengaluru-based firm had also raised funds from eBay, Tencent Holdings and Microsoft Corp last year.

If the deal with Walmart goes through, it would provide Flipkart with more arsenal to go up against Amazon in the Indian market.

Amazon and Flipkart are locked in an intense battle for leadership in the Indian market and have pumped in billions of dollars towards marketing and setting up infrastructure in the country.
Amazon, on its own, has committed investments to the tune of $5 billion for its operations in India. In a recent investor call, Amazon CFO Brian Olsavsky had said the company will continue to invest in India as it sees "great progress" with both sellers and customers here, even though the US e-tailing giant had registered a loss of $622 million from international operations in the first quarter of 2018.

US-based fund house Valic, which holds around 4,502 shares in Flipkart, and Vanguard World Fund, which has four lakh shares, have pegged the valuation of the e-commerce company between $15 billion and $19 billion. Flipkart was last valued at about $12.5 billion when it raised $2.5 billion from Masayoshi Son's SoftBank last year.

--With inputs from agencies

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Updated Date: May 04, 2018 07:45:02 IST