The Snapdeal Flipkart merger has reportedly received an in-principal approval from a consortium of Snapdeal investors. The investors who have given the nod for the merger include Ratan Tata, Temasek, BlackRock, and Foxconn.
Ratan Tata had led an undisclosed venture financing round in Snapdeal in August 2014. Temasek, on the other hand, had participated in two rounds – $100 Mn Series E round in May 2014 and an undisclosed amount of venture funding round in June 2013.
The news came in just a day after the Snapdeal Board agreed to $950 Mn merger offer from Flipkart.
However, the Snapdeal Flipkart merger still awaits final approval from PremjiInvest and Ontario Pension Fund, the report said. For the deal to get done, a minimum of 75% of minority shareholders have to approve.
“Flipkart wants all the shareholders to agree to the deal. If that does not happen, then the ecommerce player might decide to not move ahead with the deal,” said the report, quoting a source close to the Snapdeal Board.
As of now, there are around 30 investors whose approval is required for the Snapdeal Flipkart merger. Other Snapdeal investors include SoftBank Corp, Ru-Net Holdings, Tybourne Capital, Alibaba Group, Bessemer Venture Partners, IndoUS Ventures, Kalaari Capital, Saama Capital, eBay, Nexus Venture Partners, Intel Capital, and Singapore-based investment entity Brother Fortune Apparel.
Another report further added that the deal will be carried out in three phases. “SoftBank will first buyout stakes from Snapdeal and its investors – Nexus and Kalaari Capital. The capital will then be put into the Bengaluru-based ecommerce company by SoftBank. In the last stage, Flipkart will merge with Snapdeal.”
The merger does not include Jasper Infotech subsidiaries FreeCharge and Vulcan Express. While FreeCharge was acquired earlier today by Axis Bank for $60 Mn, the status of Vulcan Express is not yet clear.
An email sent to both Flipkart And Snapdeal did not elicit a response at the time of publication.
Snapdeal Flipkart Merger: The Turn From $300 Mn To $950 Mn Merger Value
Speculations related to the merger have been doing the rounds for over four months now. In May 2017, Flipkart and Snapdeal finally signed a non-binding Letter of Intent (LoI) as part of the proposed merger deal. Following this, reports surfaced that SoftBank also bought the stakes of Kalaari Capital and both the founders, raking in a total of 47.5% shareholding in the company.
However, Flipkart was adamant on conducting due diligence on Snapdeal. Plus the merger deal amount also fell to $300 Mn – $400 Mn in June 2017.
This was way less than what Snapdeal founders Kunal Bahl and Rohit Bansal had asked for. In May 2017, it was reported that Flipkart will be merging the company at a valuation of $1 Bn – much lower than the $6.5 Bn valuation Snapdeal had, after it raised $200 Mn last year in February.
Later it was reported that Flipkart revised the offer to around $850 Mn. As per reports, the Bengaluru-headquartered ecommerce giant had agreed to pay $650 Mn-$700 Mn in stock as soon as the merger is finalised. The remaining $150 Mn is to be transferred at a later date.
However, on July 13, ecommerce firm Snapdeal reportedly asked for a payout of at least $900 Mn in stock for the proposed acquisition by Flipkart. Thus, finally agreeing for a valuation of $950 Mn. There were reports of Infibeam acquiring Snapdeal as well. However, Infibeam denied any such developments.
Ratan Tata, Temasek And Others: Role Played By Minority Investors
Snapdeal’s seven-member Board included SoftBank (holds two seats), Kalaari Capital, Nexus Ventures, Rohit Bansal, Kunal Bahl, and Akhil Gupta (Vice Chairman, Bharti Enterprises).
Apart from them, minority shareholders including PremjiInvest, Ratan Tata, Foxconn, Alibaba Group, Ontario Teachers’ Pension Plan, eBay, Temasek and Hong Kong-based hedge funds, among others own about 40% of the company. However, they do not have Board representation.
SoftBank bought out the Kalaari stake resulting in the resignation of its representative Vani Kola from the Snapdeal Board. And Nexus Ventures agreed for the merger after the Snapdeal boardroom spat in April 207.
Since then, major questions on the deal were raised by minority investors including Ratan Tata and PremjiInvest. Also, other smaller investors in the company were not convinced of the viability of the deal and delayed the process.
Earlier PremjiInvest tried to build a consensus among other minority investors including Temasek, and BlackRock etc. to oppose special payouts to certain shareholders.
Snapdeal Flipkart Merger: A Tale Of Rising Investor Power
Snapdeal Flipkart merger is one tale which the Indian ecommerce ecosystem will remember. Not because it involves high profile stakeholders or the deal amount is extraordinary – but for the way, this deal has changed the face of the Indian startup ecosystem.
Right from April 2017, when Softbank Corp first started pushing the merger aggressively, till July 2017, when Snapdeal Flipkart merger is actually taking place, the Indian ecosystem has realised one thing, the power lies in the hands of investors.
The big ticket size funding which, some time ago, was considered as a ‘big thing’ is no more a symbol of success. They are an open challenge for startups to prove their worth, or fall to the decisions of those who had the major shareholding/investment in the company.
In the past, there have been many examples where despite having a unique scalable idea, founders had to step back due to association with the wrong mentors and investors. But, the Snapdeal Flipkart merger is a lesson for the new startup league who may have fallen for raising funds and burning investor money. With foreign players like Amazon and Alibaba strengthening their foothold in India, it is time that revenues and profitability become the prime motive for any startup.
The Snapdeal Flipkart merger is the biggest example at present. Even at the final stages, the deal is still at a point of uncertainty and waiting for final approvals from each of the investors. Even minority shareholders such as Ratan Tata and Temasek are leading the charge and PremjiInvest has been pushing the deal ahead since the talks began earlier in April 2017.
So, the fate of the Snapdeal Flipkart merger balances on a razor edge comprising investors apart from Ratan Tata, Temasek and a few others who could decide its fate, either way.
(The development was reported by Business Standard)