Flipkart-Walmart deal: ESOP bonanza for employees as valuation nears $20 billion
BusinessToday.In May 8, 2018
The i's are being dotted, the t's are being crossed on India's biggest e-commerce deal - an announcement is likely tomorrow, or end of week at the latest - and employees, both past and present, are eagerly looking forward to a bonanza where their stock options are concerned. We're talking about the Flipkart-Walmart mega deal, of course.
What's on the table?
Walmart is expected to buy 70-75 per cent stake in the homegrown e-tailer along with Google parent Alphabet for about $15 billion. Walmart will also likely invest $2 billion directly by infusing fresh equity in Flipkart. If things go to plan, the Bangalore-based company's valuation is expected to shoot up to $20 billion.
The investor exits lined up
Flipkart's co-founder and executive chairman Sachin Bansal is likely to sell his 5.2 per cent stake and exit completely. Similarly, the company's newest investor, SoftBank, which bought a 20.8 per cent stake for $2.5 billion last year, is expected to exit completely. The Masayoshi Son-controlled Japanese company's investment is expected to have ballooned to $4 billion, earning it a gain of 60 per cent in under eight months.
According to the MoneyControl, Flipkart's other shareholders like China's Tencent Holdings and US-based Tiger Global Management will exit partially and retain small stakes. South Africa-based Naspers Ltd. and Microsoft Corp are also expected to retain small holdings in the new company. Citing sources, the report added that these investors might have the option of selling their stake to the brick-and-mortar behemoth at a later date at the same valuation as the current deal on the table.
The big question is how big a stake will the company's other co-founder and the Group CEO, Binny Bansal, will end up retaining post the deal. He reportedly owns a 5.1 per cent stake currently.
How will Flipkart change?
Reports suggest that Walmart will get three board seats at Flipkart in lieu of its investment and will also have a say in the appointments of the group's finance, legal and compliance heads. But apart from one co-founder's exit, nothing much is expected to change at the top management. Tencent Holdings and Tiger Global Management will also reportedly continue to be represented on the board.
But plenty will change in terms of Flipkart's identity. According to the portal, while Walmart India and Flipkart will continue to maintain distinct brands after the deal, Flipkart will be listed on Indian stock exchanges in the subsequent years as a fully-owned Walmart subsidiary. Flipkart's financials will be reported as part of Walmart International once the deal closes.
The biggest changes promised by this deal will be in the field of user experience. Think personalised voice shopping of Walmart and Flipkart products by simply speaking out your orders to Google Home devices.
What's in store for Flipkart's employees?
According to The Business Standard, the mood at Flipkart's new campus at Bangalore's Embassy Tech Village is very upbeat as employees await news that their stock options have shot up in value, in sync with the mega deal. The stock options given to Flipkart employees usually have a vesting period of four years.
The employees had been a worried lot as Flipkart faced a series of markdowns in its valuations in 2016 and 2017 - coming down from a peak of around $15 billion in 2015 - till the company reportedly compensated their losses by issuing additional stocks. Now with a valuation of $20 billion looming large, current and former employees are looking forward to a windfall.
The daily added that employees are also anticipating better career growth once the deal is signed. "With Walmart coming in, which has a history of being a product leader, there will be technological changes which will be beneficial for us. Right now, we are a manpower driven company. With Walmart coming in, we will hopefully become tech-driven," said one engineering division employee.
According to Reuters, Flipkart will hold a townhall for employees on Friday where the future may be spelt out.
What's threatening to play party-pooper?
The Confederation of All India Traders (CAIT), an umbrella association representing millions of traders has slammed the Flipkart-Walmart deal, alleging that that it will encourage malpractices and predatory pricing in e-commerce in the absence of any monitoring mechanism and create an uneven level playing field where offline and online traders will be unable to compete.
The association dashed off a letter to Commerce & Industry Minister Suresh Prabhu yesterday asking that the deal should not be allowed till the time the government frames an e-commerce policy. CAIT further argued that the government should make it mandatory that such deals can take place only when 75 per cent of the sellers on an e-platform give their assent since they would be the worst sufferers.
With agency inputs