Walmart-owned Flipkart and PhonePe, on Friday, announced a full ownership separation of PhonePe, which involves hiving of the digital payments firm into a separate entity. Both entities will, however, operate under the US-based Walmart, a joint statement said on Friday.
As part of this transaction, existing Flipkart Singapore and PhonePe Singapore shareholders, led by Walmart, have purchased shares directly in PhonePe India. “This completes the move to make PhonePe a fully India-domiciled company, a process that started earlier this year. Walmart will (however) remain the majority shareholder of both business groups,” the statement said.
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Establishing these businesses as individual entities will allow both to chart their own growth paths, as they continue building new e-commerce and payment offerings to Indian internet users. In addition to the ownership and domicile changes, PhonePe is reportedly in the middle of a $1 billion fundraising from large PEs VCs at a valuation exceeding $10 billion.
In addition, Flipkart is also facilitating a $700 million Employee Stock Ownership Plan (ESOP) cash payout as part of the de-merger transaction. According to an internal email sent by Kalyan Krishnamurthy, CEO of Flipkart, the one-time cash payout to Flipkart (ESOP) post the de-merger has been determined at $165.83 per option. FE has reviewed a copy of the emails.
“We are pleased to announce that employees, who are holders of Flipkart ESOPs will receive a one-time discretionary cash payout as part of the transaction. The new share price of Flipkart has been determined at $165.83 per option (previously $189.1), excluding the value of PhonePe. The payout to employees will, however, be at US$43.67 per option, reflecting the increase in the market valuation of PhonePe,” Krishnamurthy added.
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The process of ownership separation has been ongoing since 2020 when Flipkart partially hived off PhonePe as a separate entity in December 2020. Post the separation, the payments firm went on to raise $700 million from investors, including Walmart at a valuation of $5.5 billion in early 2021.
From its humble beginnings in 2007 — selling books online — the Flipkart Group has entered into several industry verticals through brands such as Myntra, Cleartrip, Flipkart Health+ and more. Its e-commerce products currently serve more than 450 million Indians, while offering more than 1.1 million sellers – including small and medium businesses, artisans and craftsmen –growth opportunities through online market access.
The PhonePe Group was acquired by the Flipkart Group in 2016 and is one of the top three digital payments platforms by the UPI volume. PhonePe builds products and offerings tailored to the Indian market, and with over 400 million registered users, more than one in four Indians are now using PhonePe. Since its launch, PhonePe has successfully digitised more than 35 million offline merchants spread across Tier 2, 3, 4 cities and beyond, covering almost 99% of pin codes in the country.
Setting-up these businesses as separate entities will also provide value and create new opportunities for investors to participate in the Indian tech ecosystem – helping unlock and maximise enterprise value for shareholders of the two companies, the two companies added in the joint statement.
“Flipkart and PhonePe are homegrown Indian brands with a user base upwards of 400 million each. We are looking forward to the next phase of our growth as we invest in new businesses – such as insurance, wealth management and lending, while also enabling the next wave of growth for UPI payments in India. This will help propel our vision to provide billions of Indians with financial inclusion,” said Sameer Nigam, founder and CEO at PhonePe.