With valuation of Flipkart expected to spike to $20 billion after Walmart buys a 70 per cent stake in it, multiple employees with vested stocks are on the verge of becoming millionaires.
News18 spoke to multiple senior Flipkart officials who confirmed that employees are expecting large payouts in the form of Employee Stock Option Plan (ESOP) as a result of the company’s valuation increasing from $15 billion to $20 billion.
“There is a sense of excitement and a strong rumour of Flipkart buying back ESOPs from its employees. Price of repurchase is also being predicted,” said a senior official who did not wish to be identified.
Flipkart had in 2017 bought back approximately $100 million of ESOPs after a deal with Softbank. Flipkart bought back stock options from its existing and former employees at $85.2 per unit.
Flipkart has formally instructed its employees not to comment on the deal. As a company policy, employees can only sell their stocks after a period of four years.
Major Shareholders
According to Accounting and Corporate Regulatory (ACRA), Singapore, Flipkart has issued 71.89 million preference shares and 16.46 million ordinary shares with a paid-up capital of $2.16 billion and $774,305 respectively. Preferential shareholders, unlike ordinary shareholders, are typically paid a fixed dividend on a regular basis.
Top Preference Share Holders in Flipkart (in percentage):
Tiger Global International II Holdings 30.86 percent
Intervision (Services) Holdings B.V. 22.24 percent
Accel India Venture II (Mauritius) Ltd 8.98 percent
Internet Fund II Pte. Ltd 4.82 percent
Tiger Global International III 3.18 percent
Flipkart’s founders Sachin Bansal and Binny Bansal (not related) currently hold 5.5% and 5% respectively. If they sell a substantial part of their 11 percent stake, each could make close to $1 billion.
When contacted by News18, Flipkart declined to divulge details of employees holding shares in the company.
With Walmart eyeing to acquire majority stake in Flipkart, most smaller investors would be selling their stakes at a premium in secondary share sales.
“More than 30 smaller investors would make $20-200 million because most of them would be exiting after the merger,” said a market expert who refused to be identified because the deal is yet to be formally announced.
Experts are of the opinion that all players planning to exit the firm will be making profits because the company’s valuation, at $20 billion, is at its peak.
Analysts expect early-stage investors including Tiger Global, Accel Partners, and Naspers to earn between $1.2 billion and $4 billion once the Walmart-Flipkart merger goes through. They could make four to five times their original investments.
SoftBank, which owns 20.8 percent stake in the company will exit completely. The Masayoshi Son-controlled Japanese company will make a neat profit by selling its stake in Flipkart, with its investment of USD 2.5 billion set to fetch about USD 4 billion, a gain of 60 percent.
“Things have fallen into place for investors such as Tiger Global and Accel Partners, who stayed invested in the company through tough times. If they exit, they would do so at the best possible valuation at this point,” said a senior consultant.
One of the oldest investors, Tiger Global is estimated to make $4 billion.
Accel Partners is estimated to make the biggest profits. One of the first institutional investor in Flipkart, Accel had put in a million dollars in 2009. Since then it has periodically invested close to $300 million would now earn four times what it had invested.
Walmart India and Flipkart will continue to maintain distinct brands after the deal.
Flipkart refused to comment on the matter, while queries sent to Walmart remained unanswered.
“If this deal materialises, it will give a strong value to the concept of ESOPs, something that other startups may like to emulate. They will have the hope that even their companies will have an IPO or get big investors and give them a chance to encash their stock options,” said a Flipkart techie.
In the fiscal year ended March 31, Flipkart recorded a gross merchandise value of $7.5 billion, effectively meaning that goods worth USD 7.5 billion were traded through its site involving thousands of sellers and millions of buyers.
It recorded net sales of USD 4.6 billion during the year, representing more than 50 percent growth in both cases.
The Confederation of All India Traders (CAIT), an umbrella association representing millions of traders, has demanded government scrutiny of the Walmart-Flipkart deal, which it says will only encourage predatory pricing.
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