The Snapdeal founders’ decision to go solo and chart out a new path by pivoting into an open marketplace could face resistance from many of its shareholders.
Though SoftBank Group Corp, Snapdeal's biggest investor and which had pushed for its merger with Flipkart, has said it respects the founders’ decision, it is far from clear whether the disagreements within the board have been resolved. Snapdeal’s board is yet to formally meet and decide the way forward for the company, two persons familiar with the matter told VCCircle.
The boards of Flipkart and Snapdeal had reached a broad agreement on all major terms for the merger but Snapdeal founders took an about-turn in the end. This has forced SoftBank to give up on its efforts to engineer the biggest consolidation in the Indian e-commerce sector, according to several people familiar with the matter.
“Everything was agreed by everybody but the founders changed their mind,” said one of the persons involved in the merger negotiations. Two persons, including the one cited above, said the founders have already tried to rope in new investors to back Snapdeal 2.0 but have not made much progress on that front yet.
“Many are not fully convinced as eBay has already closed its operations in India,” said the person, referring to the open marketplace model which the Snapdeal founders have now proposed to take the company ahead.
Another person close to the Snapdeal management, however, refuted this and said, “We already have enough money with the FreeCharge sale and do not require additional capital for the new model.”
The latest outcome has taken various stakeholders on both the sides by surprise. Vani Kola, co-founder of Kalaari Capital, an early investor in Snapdeal who recently resigned from its board, has publicly criticised the founders’ decision to back out from the merger deal. She told ET Now television channel that the founders’ decision was not in the best interest of the company, its employees and shareholders.
“SoftBank could have forced the deal but it would have been a mess with stiff resistance from the founders. They came to a conclusion that it was not worth it,” said one of the persons cited above.
SoftBank’s funding of Flipkart in limbo?
The failure of the merger talks could have bearing on SoftBank’s proposed investment in Flipkart, too.
SoftBank was slated to invest $1 billion through a mix of primary and secondary purchases of shares in Flipkart, in addition to merging Snapdeal with the firm, to acquire a 15-20% stake and get a board seat.
“It certainly has impacted SoftBank’s plan but the funding should still happen,” said one person. “It is now 50:50,” said another person.
In a short statement, SoftBank said, “We respect the decision to steer the company in a different direction.” It also said it looks forward to remaining invested in the “vibrant Indian e-commerce space.”