Flipkart-Snapdeal merger? Analysts speculate what could happen

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Updated: April 05, 2017 9:49 PM

Snapdeal is seemingly in dire need of a saviour. After stark differences between Snapdeal investors on the future of the loss-stricken e-commerce company, even a 4-hour long board meeting did not manage to conjure up a solid rescue plan.

Snapdeal, Softbank, Flipkart, Lydia Bly Jett, Registrar of Companies, snapdeal flipkart merger, flipkart snapdeal emcommerce. snapdeal market valueIt must be noted that Snapdeal had valued at $6.5 billion in February 2016, while its value has come down to $1 billion under current circumstances. (Reuters)

Snapdeal is seemingly in dire need of a saviour. After stark differences emerged between Snapdeal investors on the future of the loss-making e-commerce company – even a 4-hour long board meeting did not manage to conjure up a solid rescue plan – its future as a standalone separate company is under cloud. Now, it is being speculated that Snapdeal is likely to be merged with Flipkart, a proposal that is backed by SoftBank, a major investor in the company. Other investors are not so keen on it though and have reportedly gone against the proposal. It was reported that SoftBank, a Tokyo-based telecom company that holds 30% of the shares in Snapdeal had tried to convince other investors to hammer out a merger between Snapdeal and its rival, Flipkart. If this actually comes through, it would be the biggest consolidation in the e-commerce sector in India. However, the arguments in favour of the merger have so far failed to convince the directors of Jasper Infotech Pvt Ltd, another investor with a major stake in Snapdeal.

Although it is still not known whether investors like Kalaari Capital and Nexus Venture Partners were completely against the proposed merger of Snapdeal with a rival e-commerce retailer or the returns they might get that was not acceptable to them. According to reports, a merger could mean swapping of both cash and shares for Snapdeal. For instance, Snapdeal’s promoter Tiger Global might receive some amount from SoftBank in cash with the swap ratio seen at 1:10 (favourable to Flipkart). Snapdeal meanwhile has said that there had been no final decision taken so far. Among the various permutations combinations being bandied about is that SoftBank is believed to have agreed to provide $100 million in the company as an interim measure. Reports suggest that a term sheet has also been agreed upon to infuse $15 million every month for the next 6-7 months. The bad news is that SoftBank has allegedly withdrawn the sheet.

Commenting on the issue that has grabbed so much space in the e-commerce industry as well as giving an inkling of the massive losses staring investors in their face, fund manager Sandip Sabharwal tweeted, “Snapdeal valued at $6.5bn in Feb 2016 Now~$1 bn. PEs ramping up valuations via rotation game over. Smart promoters sold early, hold just 6.5%.” He has in no uncertain terms indicated what is on the minds of most people watching this case play out.

After major losses, Snapdeal is said to be left with Rs 500-550 crore and is said to be losing a whopping Rs 50-60 crore per month. Although, it must be noted that these numbers are not verified. Registrar of Companies’ records show that Snapdeal had an amount of Rs 1,072 crore in cash and bank balances on March 31, 2016. It had also raised an amount of $1.75 billion since January 2011.

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