Flipkart to go for $700 million ESOP buyback during PhonePe funding: Report

As part of PhonePe's new financing round, Flipkart is likely to go for a $700 million employee stock buyback. In this round, PhonePe is expected to raise $1.5-2 billion and the round will be led by Walmart, a report in the Economic Times (ET) said. 

The round will readjust Flipkart's valuation from $37.6 billion to $33 billion and PhonePe will have a separate shareholding structure. Currently, PhonePe, valued at $5.5 billion, is categorised as an asset in Flipkart's valuation, the report added. 

"At a $12 billion valuation for the PhonePe transaction, the employee group will see liquidation of around $700 million, taking the total round size to well over $1.5-2 billion, including the secondary share sale. Employee group shareholders are likely to sell their shares to Walmart as investing in PhonePe in a new round would also incur a significant tax payout for paper money gains in PhonePe as opposed to a cash payout…," a person aware of the matter told ET.

The employee stock ownership plan (ESOP) comes at a time when startups are facing a funding crunch owing to global economic factors. Here, the company buys the shares back from the employees. Also, the employees are liable to pay the tax on the difference between the price at which they bought the shares and at which they are selling them back to the company. 

Along with Walmart, General Atlantic may also invest $250-300 million in PhonePe. 

The last buyback was undertaken by Flipkart in 2018, as a part of the deal with Walmart. It took 3-4 years to complete then.