Just when it seemed that the decks were clear for a mega acquisition in the Indian e-commerce space, prominent businessman Azim Premji has reportedly thrown a spanner in the wheel to block Snapdeal’s proposed $1-billion takeover by rival Flipkart.
Premji Invest, an investment fund owned by Wipro Chairman Azim Premji, has written to the board of struggling e-commerce major Snapdeal seeking clarity on the interests of minority shareholders, ET Now reported on Tuesday citing unidentified sources.
Premji Invest is a minority shareholder in Snapdeal, and had invested in the e-commerce company in May 2014. Another high-profile minority stakeholder in Snapdeal is businessman Ratan Tata, the patriarch of the Tata group of companies, who recently relinquished the chairmanship of the group.
As is widely known, Japanese investor Softbank, the single-largest stakeholder in Snapdeal, has pushed for its sale to rival and market leader Flipkart at a valuation of $1 billion, a huge discount from the peak of $6.5 billion seen as recently as one year ago in February 2016.
Earlier this month, investor Nexus Ventures agreed to take a $80 million payout in return for its small equity holding in Snapdeal, fuelling hopes that it has paved the way for the online marketplace’s sale to Flipkart.
However, Snapdeal is yet to get the approval from Premji and Tata, two of its most prominent minority shareholders. Apparently, Premji is seeking clarity and details on the board’s plans for Snapdeal post the proposed merger with Flipkart, ET Now reported.
On the other hand, Softbank, which holds 33% equity stake in Snapdeal, is also known to be mulling investing $1 billion in the combined entity post the acquisition, effectively switching its Snapdeal stake with that in the market leading firm Flipkart.
Softbank recently wrote off close to $1 billion on its equity stake in Snapdeal. The rapid decline in Snapdeal’s valuation, with no recovery in sight, seems to have prompted Softbank to cut its losses and exit the investment while there is still time, in favour of buying into a larger player in the industry with a stronger foothold, and perhaps, better growth prospects in an increasingly competitive market.
Softbank’s investment value in Snapdeal has steadily fallen over the last one year, after it invested $627 million in the Indian firm at a value of $1.8 billion in October 2014. Earlier too, the Japanese conglomerate recorded losses on its investments in Snapdeal in February this year and in November last year.
Snapdeal, which once was the second-largest player in the Indian e-commerce space just behind Flipkart, failed to control costs while pursuing aggressive growth. Later, in an effort to control the spiralling costs, it slowed down on customer acquisition. On the other hand, Flipkart and Amazon India continued to pump in money to garner more and more market share.