Flipkart agrees to $900-950-bn acquisition of Snapdeal
26 July 2017
E-commerce leader Flipkart is reported to have finally agreed to the $900-950 million price that smaller rival Snapdeal has asked for a merger deal and the two are now expected to seek shareholders' approval for the merger that would create a bigger rival for global e-tailer Amazon's India operations.
The deal that comes after months of dilly-dallying would still require approval by shareholders of Snapdeal, who were earlier not happy with the pricing of the transaction.
The merger deal does not include FreeCharge and Vulcan Express - the two subsidiaries of Jasper Infotech that owns Snapdeal.
The boards of Snapdeal and Flipkart are expected to meet this week to sign the term sheet and finalise the deal, soures said.
Snapdeal had, earlier this month, rejected Flipkart's $700-800 million offer and had sought a minimum of $900 million in stock for the proposed acquisition. Flipkart had since revised the offer to around $850 million.
Flipkart has agreed to pay $650-700 million in stock as soon as the merger is finalised and the remaining at a later date.
Reports quoting the Bengaluru-headquartered ecommerce giant said the merger will be carried out in three phases.
SoftBank, which owns majority stake in Snapdeal will first buy out stakes from Snapdeal and its investors – Nexus and Kalaari Capital and reinvest this in Flipkart, which will then merge Snapdeal with itself.
SoftBank proposes to invest $2 billion in Flipkart, of which the first $500 million from Snapdeal will serve as first tranche. The remaining will be used to buy out one-third of Tiger Global's shares in Flipkart.
SoftBank is likely to hold 20 per cent in Flipkart post merger. Apart from capital and resources the investment by SoftBank will also provide relief to the management.
SoftBank has written off over $1 billion on valuation of its investment in Snapdeal after its valuations plummeted from about $6.5 billion in February 2016.
The deal has been hanging fire after the two signed a non-binding letter of intent in May this year as part of the proposed merger deal. Reports then followed that SoftBank also bought the stakes of Kalaari Capital and both the founders, raking in a total of 47.5 per cent shareholding in the company.
Snapdeal founders Kunal Bahl and Rohit Bansal were, meanwhile, reported to be looking for merging with internet and ecommerce conglomerate Infibeam after the latter made a $700 million stock-only deal during a meeting last week.
Flipkart is currently under control of investor Tiger Global, with former Tiger Global executive Kalyan Krishnamurthy hedaing the operations. Krishnamurthy seems to have managed to turn the brand around for Flipkart and pushed volumes for the ecommerce business.
Separately, Snapdeal is also engaged in discussions for selling Freecharge (mobile wallet operations) and Vulcan Express (logistics arm).