Indian e-commerce giant Flipkart no longer has a stake in payments company PhonePe. The two said on Friday they have completed a full ownership separation from PhonePe and that shareholders in both firms’ Singapore entities have directly purchased shares in PhonePe’s India entity.
The move comes as PhonePe, which was acquired by Flipkart in 2016, moves its entire base to India. The payments startup is in talks to raise a whopping $1.5 billion at a pre-money valuation of $12 billion and use part of the proceedings to buy back some shares, according to a source familiar with the case.
Walmart remains the majority owner of both companies.
“The Flipkart Group has developed many successful entrepreneurs and founded impactful companies by former employees. We are proud to see PhonePe grow and thrive as a successful organization in its own right,” Kalyan Krishnamurthy, CEO of Flipkart Group, said in a statement.
“We are confident that PhonePe will continue to scale and realize its vision of providing financial inclusion to millions of Indians. Flipkart remains committed to its goal of making every Indian’s dream come true by delivering value through innovation in technology and commerce while helping small businesses connect to pan-Indian markets.
In an email to employees Friday, Krishnamurthy said that Flipkart employees with stock option plans will receive a “one-time discretionary cash payment as part of the transaction” with PhonePe. The company is repurchasing shares for approximately $700 million.
“This payout represents the value of the PhonePe holding within those Flipkart options. Flipkart’s new share price is set at $165.83 per option (previously $189.1), excluding PhonePe’s value. However, the payout to employees will be $43.67 per option, reflecting the increase in PhonePe’s market valuation,” he wrote.
Flipkart has no plans to re-enter the consumer payments market, according to another source familiar with the matter. PhonePe announced its intention to become a separate entity by the end of 2020.
The divorce will have some impact on Flipkart’s valuation. PhonePe, a leader in the mobile payments market in India, was valued at $5.5 billion in a funding round unveiled in late 2020. In July, Flipkart Group raised $3.6 billion at a valuation of $37.6 billion.
“Flipkart and PhonePe are proud homegrown Indian brands with over 400 million users each. We look 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 support our vision to provide financial inclusion to billions of Indians,” said Sameer Nigam (pictured above), founder and CEO of PhonePe, in a statement.
PhonePe is the top payment app on the homegrown UPI app, holding over 40% of the market share. India announced earlier this month that it will not enforce market share controls for players operating on the domestic payments network until December 31, 2024, in a surprise deadline extension that analysts say is a major win for market leaders PhonePe and Google Pay .
“As a result of the separation of the businesses, the company expects to record restructuring costs, including various income and other taxes, as well as employee benefits and transaction costs. These restructuring costs are non-core costs and will be treated as an earnings per share adjustment when the company reports its results for the fourth quarter of the fiscal year ended January 31, 2023,” Walmart said in a document.
The story has been updated with details of Flipkart’s stock buyback and Walmart’s quote.
