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, in a move that could ease the way in for a new strategic investor.
US retail giant Walmart is in advanced talks with Flipkart to acquire a controlling stake of more than 51 per cent in the Bengaluru-based e-commerce firm at a valuation of at least $18 billion.
Flipkart 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.
It also began the process of converting Flipkart to a private limited company, changing its name to Flipkart Pte Ltd, the filings showed.
Stakeholders in a private limited company are usually bound by a contract and have more flexibility than in a public company.
“Typically strategic investors don’t like to deal with multiple shareholders because it just becomes more cumbersome,” said a senior lawyer. “So they very often ask companies to clean up the cap table or consolidate small shareholders.”
The deal with Walmart, involving primary and secondary shares, is expected to value Flipkart at about $20 billion.
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Meanwhile, 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'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 per cent 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 as 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.