PhonePe Separation: Flipkart Begins $700 Mn ESOP Payouts

SUMMARY

The ESOP payout, following separation of PhonePe from the ecommerce company, has been touted as the largest one-time cash payout at an Indian new-age tech startup

The one-time cash payout has been granted to employees with stock options to readjust Flipkart’s share price, which will not factor in PhonePe’s value going forward

The move is expected to benefit more than 30,000 employees at the ecommerce giant, with top 20 employees accounting for $200 Mn of the total $700 Mn cash payout

Ecommerce major Flipkart on Friday (July 14) began paying cash compensation worth $700 Mn to its employees as part of the demerger of PhonePe from the company.

The move has been touted as the largest one-time cash payout at an Indian new-age tech startup. This comes seven months after the fintech giant was hived off from the parent company Flipkart in December 2022.

“…. the company and the board have agreed upon a new share price for Flipkart shares of $165.83, reflecting the value of Flipkart without PhonePe. To this effect, a one-time cash payout – proportional to the value of PhonePe within your Flipkart options — will be made to you,” Flipkart CEO Kalyan Krishnamurthy said in an internal mail seen by The Arc.

The company’s board has given its nod to pay $43.67 as compensation for each stock option of eligible current and former employees. This ecommerce giant has set December 23, 2022 as the record date for executing the transaction.

The payout exercise will be completed on or before July 31, as per reports.

While Flipkart is yet to divulge the number of employees eligible for the payout, reports pegged the number at more than 30,000. Of the total corpus, $200 Mn has reportedly been earmarked for top 20 executives, while the remaining $500 Mn will be divided between the rest of the employees.

The story dates back to 2016, when Flipkart acquired PhonePe. Two years later in 2018, US retail giant Walmart acquired a majority stake in the ecommerce major. As a result, PhonePe operated as a subsidiary of Flipkart until December 2022, when the digital payments startup separated from the parent company.

At the time of the demerger, PhonePe accounted for 20% of Flipkart’s option value given to current and former employees, and hence the separation led to erosion of the value of Flipkart’s ESOPs. The one-time cash payout has been granted to employees with stock options to readjust Flipkart’s share price, which will not factor in PhonePe’s value going forward

Flipkart has so far executed five cumulative ESOP buybacks worth $1.5 Bn in the last six years.

The one-time cash payout brings somewhat of a cheer for the Indian startup ecosystem which has been plagued by the ongoing funding winter, valuation markdowns and layoffs.