1. Flipkart Snapdeal Merger: The snapped deal’s story so far

Flipkart Snapdeal Merger: The snapped deal’s story so far

The onerous clauses, coupled with lower valuations are believed to have acted as deal breakers. The proposed deal would have resulted in the largest buyout in the Indian startup space.

By: | Updated: August 1, 2017 6:30 PM
The proposed merger between Snapdeal and Flipkart would have resulted in the largest buyout in the Indian startup space. (Image: Reuters)

The deal between Snapdeal and Flipkart fell through yesterday as Snapdeal wanted to pursue an ‘independent path’, according to its founders. The proposed deal would have resulted in the largest buyout in the Indian startup space. It has been a roller coaster ride for these two companies since the merger was announced. In late March, Paytm was in the news for expressing interest in picking up Japanese investor Softbank’s stake in Snapdeal. Snapdeal’s single largest investor Softbank had seen its valuation plummet from the peak of $6.5 billion to below $1 billion. The online payments company Paytm withdrew its interest by March end.

In the meantime, Flipkart, India’s leading e-commerce player, announced the acquisition of Ebay as part of an exercise to raise $1.4 billion from a consortium of lenders, adding to the already buzzing news of its interest in Snapdeal, in April this year. Later in May, Snapdeal agreed to a non-binding letter of intent (LoI) for a merger with Flipkart. Snapdeal co-founders Kunal Bahl and Rohit Bansal were likely to receive USD 30 million in cash each after their exit from the company.

Just as things seemed to be moving smoothly, the HR head of Snapdeal, Saurabh Nigam decided to quit ahead of the deal. There was a lot of anxiety regarding employee layoffs in Snapdeal. In June this year, the  Snapdeal management spoke of a plan B in case the deal falls through. This plan would likely render at least 800-1,000 employees jobless.

In July, it was reported that Snapdeal wanted Flipkart to add USD 150-200 million for subsidiaries Vulcan and Unicommerce to the then valuation of USD 1.1 billion. However, Flipkart made an offer of just $550 million. In the entire deal, valuation had always been the bone of contention. Later, in a revised bid Flipkart offered $900-950 million, which was reportedly rejected by Snapdeal.

Apart from valuations, the non-compete clause proposed by Flipkart too acted as a hindrance. Flipkart had also suggested a lock-in period of two years for existing investors to stay invested in the company, which did not go down too well with the Snapdeal bosses. These onerous clauses, coupled with lower valuations are believed to have acted as deal breakers. It remains to be seen if Softbank finds another potential buyer to exit from Snapdeal. The Japanese internet and telecom conglomerate said in a statement that “we respect the decision”.

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