Mumbai: Walmart, which signed definitive agreements last Wednesday to acquire a 77 per cent stake in e-commerce giant Flipkart for $16 billion, has set a one-year deadline for securing all regulatory approvals.

Else, it could opt to walk out of the agreement without inviting any penalties.

In a filing with the Securities and Exchange Commission of the US, the $500-billion Bentonville, Arkansas-based retailing giant lifted the veil of secrecy ever so slightly on the deal that it has negotiated with the Sachin and Binny Bansal, the unrelated co-founders of Flipkart, and other existing shareholders of the Bangalore-headquartered group that comprises five companies based in India and four in Singapore.

The agreement was signed by Walmart and its wholly-owned subsidiary Wal-Mart International Holdings Inc, a Delaware corporation, with Singapore-based Flipkart Private Ltd, which means that it will be an offshore transaction.

"Immediately after the closing of the transactions, all Flipkart preference shares will convert into ordinary shares," Walmart said.

The agreement provides for a "contemporaneous" issuance of fresh shares for an aggregate value of $2 billion and the purchase of shares held by a slate of existing shareholders for a value of $14 billion.

"The share issuance agreement and the share purchase agreement also contain customary termination rights for the parties including, among others, by the Purchaser (Walmart) if the transactions have not closed by March 9, 2019. No termination fee would be payable if the share issuance agreement or the share purchase agreement were terminated," Walmart said in the filing.

There are several situations under which the agreement can be terminated: the failure to win regulatory approval from the Competition Commission of India; material adverse change in Flipkart's business; inaccuracy of representations and warranties, and performance of covenants; and governmental or shareholder litigation challenging either of the share issuance or secondary share purchase transactions.

When he announced the deal, Walmart chief executive Doug McMillon had said he expected to close the transaction by the end of this calendar year. In fact, the Beast of Bentonville had also said that it hoped to meld Flipkart's numbers into the revenues of Walmart's international operations by the end of the second quarter and had suggested that might impact the company's earnings per share by up to 30 US cents. Walmart had reported an EPS of $3.28 in Fiscal 2018.

For the first time, Walmart said the agreement also confers on it the right to seek an issue of a second tranche of fresh Flipkart shares "at any time after the closing of the transaction and on or before the first anniversary of the closing" for an aggregate purchase price of up to $3 billion.

"These additional ordinary shares will be issued at the same price per share as the ordinary shares issued in the share issuance, subject to adjustment for any stock splits, stock dividends or similar transactions," the filing said. It was not immediately clear whether such a pricing proviso was in compliance with existing Sebi regulations governing unlisted companies.

Timeline for IPO

Walmart also provided some clarity on its plans to come out with an initial public offering (IPO) for Flipkart.

"Pursuant to a registration rights agreement to be entered into concurrently with the shareholders agreement, holders of 60 per cent of the Flipkart shares held by the minority shareholders, acting together, may require Flipkart to effect an initial public offering following the fourth anniversary of closing of the transactions," it said. The $500 billion firm added that the IPO will be not be less than the valuation at which Walmart acquired the company.

Following the acquisition, the Flipkart board will initially have eight directors with five being appointed by Walmart, two being appointed by certain minority shareholders and one Flipkart founder (Binny Bansal). Sachin Bansal has already decided to sell his shares and exit from the company.

For at least two years after the transactions, two of the Walmart-appointed directors will be unaffiliated with Walmart. It added that the number of directors may be increased to nine at any time, and the additional director would be appointed by the acquirer subject to the approval of a majority of the Flipkart board.

Walmart will also have right to appoint or replace the chief executive officer and other principal executives of the Flipkart group of companies, subject to certain consultation rights of the board and the founder.

Restricted veto rights

The minority shareholders of Flipkart will be able to exercise a conditional right of veto over "specified decisions relating to Flipkart's business and activities", the filing said but did not spell out the details.

"In addition, holders of 60 per cent of the Flipkart shares held by the minority shareholders, acting together, may exercise veto rights to prevent certain significant transactions or other events involving Flipkart," it added. This suggests that minority shareholders, with a combined stake of 13.8 per cent of the overall equity of Flipkart, may be able to block some transactions.

Moreover, holders of 40 per cent of Flipkart shares held by the minority shareholders - or a combine holding of 9.2 per cent of the total equity - will be able to veto "certain material, non-arms' length transactions between Flipkart and Walmart.

These veto rights for the minority shareholders will expire if Walmart owns 85 per cent of the outstanding shares of Flipkart.

Walmart and other significant minority shareholders - it didn't spell out who -- will also have the right of first refusal on transfer of Flipkart shares along with co-sale rights in certain situations. The right of first refusal for the minority shareholders will expire if Walmart owns 85 per cent of the outstanding Flipkart shares.

If Walmart transfers a sufficient number of Flipkart shares which gives rise to a situation that it no longer controls a majority of the Flipkart shares, then each minority shareholder will also be entitled to transfer all of its holding to the proposed buyer of Walmart's holding.

"In certain situations, Walmart and a percentage of the minority shareholders may exercise a 'drag along' right to cause the remaining minority shareholders to sell all or a portion of their shares in a sale of Flipkart. If the drag along right is exercised, each minority shareholder must be entitled to sell all of its shares in the proposed transaction," the filing added. These 'drag along rights' will expire if Walmart owns more than 85 per cent of the Flipkart shares.

Besides Binny Bansal, the other minority shareholders include Tiger Global, Microsoft and Tencent Holdings. While it was earlier believed that Masayoshi Son's SoftBank would sell its entire stake, reports now say that it has not yet taken any decision on the sale of its over 20 per cent stake in Flipkart.