Flipkart plans to buy back ESOPs worth $125 million

BENGALURU: Flipkart is mulling a buyback of employee stock options (ESOPs) worth nearly $125 million, sources told TOI. If it happens, it will create many new dollar millionaires. The plan is part of a new funding round that the Walmart-backed company is in the midst of. Flipkart is talking to investors to raise about $3 billion, a round that is expected to value the firm at $35 billion.
Flipkart employees will have the option to liquidate their vested ESOPs. In 2018, when Walmart acquired Flipkart, it had reserved $500 million to buy back ESOPs from Flipkart’s staffers. The buyback had turned a few hundred Flipkart employees into millionaires. Flipkart employs over 15,000 full-time employees in India.
TOI has reported that Canada Pension Plan Investment Board (CPPIB), Abu Dhabi Investment Authority (ADIA) and Japan’s SoftBank together could invest around $2 billion in the group, while Softbank would pump in $500-550 million.
A number of new-age companies, including Swiggy, Zerodha and Razorpay, have been buying back ESOPs. In April, Paytm expanded its ESOP pool to $604 million, from around $33.4 million last year.
Flipkart India’s financial statement filed with the MCA shows that the grant of stock options under Flipkart Stock Option Scheme 2012 (FSOP 2012) would vest on day one and not more than five years from the date of grant of such options. The weighted average fair value of the options granted during the 2019-20 financial year was $106.9, compared to $111 in 2019, the MCA documents sourced through Tofler showed.
In 2019-20, Flipkart India repurchased 48,897 employee stock options, compared to 187,974 in the previous year. It granted 204,940 options during 2019-20, compared to 294,187 previously. When TOI reached out to Flipkart on its buyback plans, it said it has no comments to offer.
ESOPs are a widely-used retention tool. It allows employees to purchase the securities of the company at a predetermined price, within the defined exercise period. Stock options are subject to a vesting period which could be time or performance-based or a combination of both.
Ankur Pahwa, EY India’s e-commerce and consumer internet leader, said ESOPs have gained traction in the last two years because of many exits which have resulted in real cash for employees. “In addition, many companies are looking to buy back ESOPs as they go public, or investors buy those options as part of the primary or secondary transactions. Unlike the Valley, where ESOPs are well understood or appreciated, most Indian employees did not get the benefit earlier, but now it has become a tool for wealth creation here,” he said.
Abhishek Goyal, the founder of startup advisory Tracxn, said a few people made money between 2008 and 2018 in the Indian startup ecosystem. “In the last two years, especially after Walmart bought Flipkart, more employees have benefited as valuations of companies have risen and there are more funds with the companies and investors, and companies have done more buybacks,” he said.

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