Flipkart Online Services Pvt. is nearing a final agreement to acquire rival e-commerce provider Snapdeal after winning support from the startup’s three primary venture investors, but the contract still needs backing from two of India’s most powerful businessmen, according to people familiar with the matter.
SoftBank Group Corp., the largest shareholder in Snapdeal, has pushed for the deal and ultimately persuaded Nexus Venture Partners to agree to terms, said the people, asking not to be named because the matter is private. Kalaari Capital and the founders had earlier agreed to the merger, which calls for Snapdeal’s valuation to be reduced to about $1 billion from its previous $6.5 billion. The parties have reached a non-binding preliminary agreement that requires due diligence to be completed in a few weeks.
Still, several important investors have yet to sign on to the deal, including the family offices of Azim Premji, the billionaire chairman of tech services giant Wipro Ltd., and Ratan Tata, the former chairman of the salt-to-software conglomerate Tata Group, the people said. It’s not clear how significant a hurdle that will be to a final deal.
The Flipkart-Snapdeal combination is aimed at creating a stronger local competitor to battle Amazon.com Inc., the pioneering e-commerce provider that has become the fourth-most valuable company in the world. Founder Jeff Bezos has vowed to spend $5 billion in India to gain share as the market surges. He’s determined not to miss out like he did in China, where Alibaba Group Holding Ltd. — backed by none other than SoftBank — came to dominate the local market.
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Flipkart, Snapdeal and SoftBank all declined to comment.
If due diligence goes smoothly, a term sheet specifying cash and stock for each shareholder will follow and a final agreement could be signed by mid- to late June, the people said. Under terms of the preliminary pact, Snapdeal’s two founders Kunal Bahl and Rohit Bansal will together receive about $30 million with a similar sum to be set aside for Snapdeal’s nearly 2,000 employees. Kalaari Capital, one of the two early investors in the startup, is to get $30 million, while Nexus will receive twice that amount for its larger stake, they said.
Kalaari’s managing director Vani Kola, an early investor in Snapdeal, told Bloomberg that she has resigned from the startup’s board. Kola’s role as a board member with powers to veto any deal as well as an investor negotiating a return was viewed by some as conflict of interest. “I was done with what I needed to do,” Kola said, adding that she saw no conflict of interest.
Not all small investors in Snapdeal are on board with the proposed Flipkart acquisition and some are dragging their feet, people familiar with the matter said.
SoftBank founder Masayoshi Son has advocated for the deal as a win-win outcome for both local companies. The Japanese billionaire, whose company owns about a third of Snapdeal parent Jasper Infotech Pvt, could contribute that equity to the merged entity and infuse another $500 million to $1 billion in Flipkart through a transaction with Flipkart backer Tiger Global Management, the people said.
That would give Flipkart more firepower to battle Amazon in one of the world’s fastest growing online retail markets. The Seattle-based company’s India chief Amit Agarwal has used the money from headquarters to develop technology and gain customers.
Son financed a similar battle in China — and won billions. He was one of the earliest backers of Alibaba, the e-commerce player that first defeated eBay in China and then successfully fended off Amazon. That investment remains one of his most successful to date, giving him stock worth about $90 billion.
Bangalore-based Flipkart said last month it had raised $1.4 billion from Tencent Holdings Ltd., Microsoft Corp. and EBay Inc. in what it said was the largest internet investment in India. Flipkart said the post-transaction valuation for the company was $11.6 billion. An alliance among Flipkart, Snapdeal and EBay could give the business customers, scale and technology, though it’s not clear how easily those could be integrated.
“This is a landmark deal for Flipkart and for India,” the company’s co-founders Sachin Bansal and Binny Bansal said in a statement. “This deal reaffirms our resolve to hasten the transformation of commerce in India through technology.