Snapdeal, Flipkart may ink merger next week
Photo Credit: Shah Junaid/VCCircle

The impending merger of troubled e-commerce firm Snapdeal with bigger rival Flipkart could happen as early as next week, two persons familiar with the matter told VCCircle.

Once the deal is done, Snapdeal founders Kunal Bahl and Rohit Bansal would leave the organisation, one of the persons cited above said. Besides, contrary to some media reports, Snapdeal's digital payments subsidiary FreeCharge and order management provider Unicommerce would be part of the deal. However, its logistics arm Vulcan Express is likely to be divested, the person added.

The nitty-gritty of the deal is now being worked out, including a $20-million compensation each for Snapdeal founders from the e-tailer's biggest investor SoftBank, a third person said.

A SoftBank spokesperson declined comment while Snapdeal and Flipkart did not immediately respond to email queries from VCCircle.

"We are making progress. Everybody is working towards a resolution. We are hoping it (merger) will happen soon," said the second person cited above.

Earlier, several media reports said, citing news agency PTI, that SoftBank is believed to have inched closer to securing the consent of co-investor Nexus Venture Partners for Snapdeal's sale to Flipkart. It said that "Nexus finally seemed to be warming up to the idea."

A meeting was held yesterday, and there would be another board meeting on Wednesday to seal the deal, the report added.

The discussions regarding Snapdeal's sale to Flipkart had reached a dead-end because of disagreements between SoftBank, which is orchestrating the sale, and investors Nexus and Kalaari Capital.

On 2 May, Snapdeal had held a board meeting to address the investors' concerns and finalise the compensation to founders Bahl and Bansal. However, no consensus could be reached then.

The merger can move ahead only if at least two of Snapdeal’s majority shareholders give their consent. Earlier this month, Kalaari gave its consent to the sale and agreed to the terms of the deal.

Nexus and Kalaari were initially opposed to the proposed sale that values the beleaguered e-commerce company at $1 billion, a far cry from its peak valuation of $6.5 billion.

They disagreed with SoftBank over its offer to invest in the e-commerce firm and its mobile wallet subsidiary FreeCharge, wherein it proposed a valuation that was less than half of what Snapdeal racked up in its last funding round in February 2016. They rejected the offer “as the valuation drop would have led to a significant increase in SoftBank’s stake and a corresponding slide in their ownership.”

SoftBank, which has pumped nearly $900 million into the startup, holds two seats on Snapdeal's board, while Nexus and Kalaari hold one each.

Snapdeal’s other investors include SoftBank-backed Chinese e-commerce company Alibaba, Taiwanese contract electronics manufacturer Foxconn, e-tailer eBay Inc., media company Bennett Coleman & Co. Ltd, and venture capital investors such as Bessemer Venture Partners, Intel Capital, Iron Pillar, and Ratan Tata.

In the second half of last year, eBay Inc, a minority investor in Snapdeal, had offered to sell eBay India to Snapdeal and put extra money into the company, but that offer was rejected by the company’s board over differences in the proposed valuation. Earlier this month, Flipkart had bought eBay India when it raised $1.4 billion.

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