Sale to Flipkart: Are Snapdeal board members fully on board yet?
Photo Credit: Shah Junaid/VCCircle

It’s not over till it’s over.

Recent reports of the Snapdeal board approving a proposal to merge the strife-stricken e-commerce company with rival Flipkart notwithstanding, the deal still faces a host of improbabilities.

A person directly aware of the ongoing developments at India’s third-largest online retailer said founders Kunal Bahl and Rohit Bansal continue to be in favour of selling the company to listed e-tailer Infibeam or going it alone while a majority of smaller shareholders have yet to be won over the proposal to merge the company with Flipkart.

Owing to the flimsy truce among the members over the issue of the sale to Flipkart, the Snapdeal board hasn’t voted on the proposal yet, said the person cited above. “Instead of voting, the board has decided to seek the consent of each shareholder first.”

The move to merge Snapdeal with Flipkart is orchestrated by the former’s largest investor, Japan’s SoftBank Group Corp.

Snapdeal has been in doldrums for the past year, as it failed to mop up fresh funds after the last round of $200 million it raised at a valuation of $6.5 billion in early 2016. While the Snapdeal founders themselves made the first move to seek a merger with Flipkart in August last year, as reported by VCCircle, they later opposed the idea after its larger rival offered a valuation much lower than they expected.

Snapdeal’s other investors, including venture capital investors Kalaari Capital and Nexus Venture Partners, too, were initially not on board for a merger with Flipkart. SoftBank, however, had managed to convince Kalaari and Nexus by the middle of May.

The Japanese investor, according to people aware of the backroom negotiations, offered to invest in one of Kalaari’s funds besides buying out its small stake in Flipkart, before the VC firm agreed to sign on the dotted line.

In June, Flipkart made an initial offer of $700-800 million, which was rejected as it was way less than the $1 billion Snapdeal had sought. Earlier this month, Flipkart made a revised offer of around $900 million that the Snapdeal board reportedly approved.

It has, however, now emerged that the so-called board approval entailed the consent of only SoftBank, Kalaari and Nexus Partners. Snapdeal has at least 30 institutional and individual investors.

The board, instead of passing a resolution for a sale to Flipkart and then reaching out to other shareholders, has decided to seek their approval first, the person cited above said. The shareholders are likely to vote on the proposal in the coming week.

Email queries regarding the deal to Jasper Infotech Pvt. Ltd, which runs Snapdeal, and Flipkart didn’t immediately elicit any response. Sidharrth Shankar, partner at J Sagar Associates, the law firm advising Snapdeal, was not available for comments.

Meanwhile, Flipkart has preconditioned the merger to the approval of all shareholders in Snapdeal. “The board will have to get 100% votes for the deal to go through because that's what Flipkart has asked," the person cited above added. “Flipkart wants every single Snapdeal shareholder to sign the merger that they don't get into any controversies going forward.”

Bringing all the shareholders on board might prove challenging for SoftBank as there continues to be a difference of opinion on the proposal, said two more individuals aware of the development. For instance, Snapdeal shareholder PremjiInvest, the proprietary investment arm of Wipro Ltd chairman Azim Premji, wants Flipkart shares in lieu of the stake it holds in Snapdeal instead of cashing out.

It is also learnt that SoftBank wants to buy out all shareholders in Snapdeal and be the sole participant in the final transaction with Flipkart. “Sorting this issue itself is likely to be a challenge,” said one of the individuals mentioned above.

Another person said that the structuring of the deal will take a considerable amount of time as many parties are involved. “It is still too early to say whether the deal would go through,” he added.

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