Flipkart-Snapdeal deal done, stage now set for bigger war
Nexus to get cool $100 million and stake in merged entity, Kunal Bahl, Rohit Bansal will take home $30 million each
The decks have finally been cleared for the sale of e-commerce major Snapdeal to its bigger rival Flipkart. Japan’s Softabank, the biggest investor in Snapdeal, has successfully brokered an agreement with Nexus Venture Partners, which was earlier resisting the sale plan. The merger between the two biggies will open a new chapter in the dog-eat-dog e-commerce space, which is faced with severe fund crunch. The development also sets the battlefield ready for the two biggest players in the space —Flipkart and the deep-pocketed Amazon.
“The merger deal is technically through,” sources privy to the development said.
The deal, which looks a win-win for all investors and promoters, came a day after Softbank said it has written off its $1 billion investment in Snapdeal. The merger deal comes at a time when investors have been raising concerns over profitability in e-retail and ever-increasing competition in the sector. Interestingly, it makes India’s e-commerce space a playground for a clash between SoftBank Group’s Masayoshi Son and Jeff Bezos, Amazon founder.
As per the agreement reached on Thursday, Nexus Venture Partners, an early investor in Snapdeal, will get a cool $100 million in cash for its 12 per cent holding besides a stake in the merged entity. Kalaari Capital will get $60 million for its 8 per cent stake.
Kunal Bahl and Rohit Bansal, Snapdeal promoters, will take home $30 million each in cash in lieu of their entire 6.5 per cent stake.
Flipkart and Snapdeal will sign a letter of intent (LoI) in the coming days. This will be a non-binding agreement between the two parties. “Even if both the parties find that everything is in order, they will have the right to say no to the deal at any point of time till the final agreement is signed,” a source privy to the development said.
After signing the LoI, Flipkart will start the due diligence process. This will include assessing the physical possessions like warehouses and offices and going through the records and financial data of Snapdeal. This process can take a couple of weeks or even go up to four-six weeks to get completed. Once the due diligence process is over, the final agreement will be signed by the entities.
Softbank, an investor in both Flipkart and Snapdeal, has been brokering the deal for some time now as it started witnessing losses on its investments in Snapdeal for the past few quarters. Softbank has invested around $1 billion in Snapdeal in multiple rounds and holds close to 34 per cent stake in the company. The merger has been necessitated by quick and steep falling in Snapdeal’s valuation, which was around $6.5 billion in one of the funding rounds. It has plummeted to $1 billion closer to the merger deal talks. According to sources, Softbank will be investing around $1.5 billion to get a double-digit stake in the merged entity.
The merger will create the largest e-commerce entity in India and provide it more fuel to fight the onslaught of the US e-commerce giant Amazon. Flipkart had also eliminated one more player in the market – eBay -- by merging it with itself recently.
Flipkart enjoys the numero uno position in India’s burgeoning e-retail space. Last month, it had raised $1.4 billion in a multifaceted deal through which it would also acquire eBay’s India operations.
Sangeetha G.