Flipkart To Begin $700 Mn ESOP Buyback After PhonePe Split

Employees of the Indian ecommerce giant Flipkart are set to receive a one-time cash payout from a $700 Mn employee stock option plan (ESOP) buyback. Flipkart is reportedly facilitating the buyback as part of its separation from the fintech giant PhonePe later this month.

Per a Flipkart spokesperson, the payouts for the ESOP buyback will be made by July 31, adding that the communication regarding the same was made to the employees previously.

All the former and current employees eligible will receive $43.67, or around INR 3,615 per unit of ESOP they hold in Flipkart as compensation for the loss of PhonePe’s value in the stock option since it is separating from the group. 

The fintech decacorn’s separation comes as part of its larger plan to go public. To that extent, PhonePe also made a return to India last year, paying $1 Bn in taxes to do so.

As such, more than 24,000 employees, including Flipkart and Myntra staff who have since moved on, will be given the cash payout based on the number of stock options they have, reported ET citing an internal note.

To be sure, the payouts to each employee will still be subject to applicable withholding taxes and other tax rules in the respective countries of ESOP holders. According to the note cited by ET, legal formalities for the payout are currently underway, it added.

The news of a buyback first broke in November 2022, when Flipkart was said to be initiating the buyback as part of a $1.5-2 Bn fundraise by PhonePe. The fintech decacorn has since raised $850 Mn in multiple tranches from its largest shareholder Walmart, along with investors such as General Atlantic and Ribbit Capital.

ET added that the record date for the buyback has been set on December 23, 2022, and the payment to employees would depend on ESOPs held as on that date, and will only be on all vested options for current and former employees. 

Further, current employees will also get benefits based on their unvested options, the internal note reportedly said.

The ESOP buyback will see Flipkart’s valuation drop to $33 Bn from the $37.6 Bn it commanded during its last funding round in 2021. The drop is expected as a result of PhonePe having a separate shareholding structure.

The ecommerce giant, bought by Walmart for an eyewatering $18 Bn in 2018, has conducted several ESOP buybacks before. In 2021, it bought back shares worth $85 Mn as part of its $3.6 Bn funding round. In 2018, Flipkart purchased shares worth $500 Mn from its employees during its acquisition by Walmart.

Flipkart’s marketplace arm raked up INR 4,361 Cr in losses in FY22, up 1.5X over the previous year. Amid all this, Walmart has consistently backed Flipkart and PhonePe for success. In a recent investor conference, Walmart’s chief financial officer John David Rainey said that the two can become $100 Bn businesses soon.