Walmart Inc.'s agreement to buy electric vehicles from maker Canoo prohibits the startup from doing business with Amazon. It also gives Walmart an option to buy more than 20% of Canoo's stock.
The conditions appear in a document that Canoo Inc. filed with the Securities and Exchange Commission on Wednesday, a day after the companies announced the agreement and Canoo held its annual shareholders meeting.
The five-year purchase agreement between the Bentonville-based retailer and the California electric-vehicle startup provides for an initial order of 4,500 of Canoo's pod-like Lifestyle Delivery Vehicles, with an option for Walmart to buy up to an additional 5,500.
Walmart said Tuesday that the deal helps the company move toward its goal to eliminate all greenhouse gas emissions from its supply chain by 2040.
Neither company said how much Walmart agreed to pay for the vehicles, but Canoo said in a May earnings call that its Lifestyle Delivery Vehicles have a targeted starting price of $34,750.
Wednesday's filing shed a little more light on some terms of the agreement between the two companies.
As part of the purchase agreement, Canoo issued Walmart a "warrant" to buy 61.2 million shares in the company over 10 years at $2.15 per share of common stock. That could give the retailer a more than 20% stake in Canoo.
Walmart is immediately vested with 15.3 million shares.
A stock warrant gives an investor the right to buy a public company's stock at a specific price and date, according to Investopedia.com. Warrants represent future capital for the company issuing it.
Brian Yarbrough, a retail analyst with financial services firm Edward Jones, said a company with a warrant has the right to convert it to shares.
Walmart may choose to phase in the conversion, he said, buying maybe 5% one year and another 5% a few years later.
"It doesn't always mean you'll convert them, but it just gives you the right to convert them into shares," Yarbrough said.
If Canoo's shares go higher than $2.15, then it's a good deal for Walmart, Yarbrough said. But if the shares tank, Walmart's not likely to exercise that option.
"How likely they are is about the success of the [issuing] company and how much the shares are worth at the time," Yarbrough said.
The document also contains a proviso that, while the agreement is in effect, Canoo cannot conduct business with Amazon.com, its subsidiaries or its affiliates.
No other company is named in the agreement.
Yarbrough said such arrangements don't happen often, but may when a company takes an ownership stake in another.
"Walmart's saying they've already taken an ownership stake, we're vested, and they're saying you need to be vested in us and not provide the rivals" with the same goods, Yarbrough said.
The company posted a net loss for this year's first quarter, which ended March 31, of $125.4 million compared with a net loss of $15.2 million in the same period a year earlier.
Canoo also operates in California and Texas and has more than 940 employees.
Canoo's shares are traded on the Nasdaq, and closed Thursday at $4.61, up $1.04, or 29.13%. The company's shares have traded between $1.75 and $13.35 in the past year.
Walmart's shares closed Thursday at $127.82, up $2.45, or 1.95%, on the New York Stock Exchange. The stock has traded between $117.27 and $160.77 in the past year.
Canoo has said since November that it is moving its headquarters and some of its production to Walmart's hometown of Bentonville. However, Canoo has yet to reveal the address or size of the Bentonville facility.