As its proposed merger with bigger rival Flipkark is heading nowhere as of now, Snapdeal is in the process of preparing a plan B.
Snapdeal has plan B up its sleeve
As its proposed merger with bigger rival Flipkark is heading nowhere as of now, Snapdeal is in the process of preparing a plan B. The struggling e-retailer’s plan is to adopt a different business model, which requires less cash, if the merger falls through. “As part of corporate planning, every company should have a plan B. It is good if the merger happens, if not there should be a plan B,” a source said. Snapdeal will also sell its logistics arm Vulcan Express and fintech company Freecharge to overcome the financial crisis. It expects the Vulcan deal to bring in Rs 100 crore and Freecharge is expected to be valued anything between $80 and $100 million. With several entities, including Airtel, Bank of Baroda, Axis and Alipay, evincing interest in buying Freecharge, Snpadeal hopes it will be through with the deal in next four to six weeks. The two deals should help the company sail through its present financial crisis, sources said. However, it does not want to continue with the cash intensive, loss-making model anymore. It is in the process of designing a new model. “The new business model will need less cash and the company will be able to move on with the money that will come in through the deals,” a source said. Once the model is ready, the board’s consent will be sought. If the merger does not happen, this model will help Snapdeal to remain a standalone entity, sources added. Flipkart had made an initial offer of $700-$800 million worth cash and stock deal after due diligence. Snapdeal investors are, however, not very happy with the offer and the valuation. “The board has found the offer low and has rejected it. However the new offer from Flipkart has not come yet,” a source privy to the development said. Though a letter of intent was signed by both the entities in May after the Snapdeal board approved the merger proposal, minority investors Azim Premji and Ratan Tata had opposed the valuations at which the merger was proposed. “Though these minority investors are not there in the board, their opinion is valued by the company,” sources said. The letter of intent was a non-binding agreement, which allowed both parties to withdraw at any point of time till they entered the final agreement. Earlier, reports had said Flipkart was expected to make a revised offer of $900-$950 million for buying Snapdeal. The revised offer would match the initial asking price of $1 billion. SoftBank, Snapdeal's largest investor, has been proactively mediating the sale for the past few months. The board of Snapdeal also has representation from its founders (Kunal Bahl and Rohit Bansal), Nexus Venture Partners and Kalaari Capital. The deal between Snapdeal and Flipkart, if completed, would mark the biggest acquisition in the Indian e-commerce space. One of the leading contenders in the Indian e-tailing segment, Snapdeal has seen its fortunes failing amid strong competition from Amazon and Flipkart. Snapdeal's valuations have also plummeted from about $6.5 billion in February 2016. SoftBank has already written off over $1 billion on valuation of its investment in Snapdeal.