Snapdeal agrees to sign non-binding letter of intent for merger; potential deal could be valued at around $1 billion
Softbank-backed e-commerce firm Snapdeal has finally agreed to sign a non-binding letter of intent for a merger with Flipkart. This follows SoftBank securing the nod from its co-investor firm, Nexus Venture Partners (NVP). SoftBank, the largest shareholder in Snapdeal, had earlier secured the go-ahead from the founders and another investor, Kalaari, but the matter was stuck as Nexus was not in agreement with the valuation suggested, which according to sources has now been resolved.
According to sources, Snapdeal and Flipkart would now sign a non-binding agreement to conduct the due diligence process. A term sheet to this effect is expected to be signed shortly. Emails sent to SoftBank, Snapdeal, Flipkart, Kalaari Capital and Nexus Venture Partners did not elicit any response till the time of going to the press.
Snapdeal was valued at $6.5 billion in its last funding round in February 2016. However, the valuation has shrunk since then and the potential deal could be valued around $1 billion. On Wednesday, SoftBank said it suffered a loss of $1billion (`6,500 crore) on its investment in Snapdeal during 2016-17. SoftBank currently owns around 33% in Snapdeal, while Nexus has roughly a 10% stake and Kalaari holds 8% in the firm.
It is believed that the sale of Snapdeal will involve a share swap in the ratio of 1:10 in favour of Flipkart. In addition, SoftBank might infuse additional capital into Flipkart, around $1.5 billion, so as to end up with an equity stake of 20%. In total, it is understood that SoftBank would pay close to $200 million to the rest of investors and the founders in lieu of their stake in Snapdeal.
In a separate transaction, SoftBank is understood to have initiated sale of Snapdeal’s payment wallet business Freecharge to Paytm. The company is believed to have signed a term sheet from Paytm, which will begin the due diligence process of the business now. According to sources, Freecharge currently has 10-12 million active monthly users.
Losses at Snapdeal ballooned to Rs 3,315 crore in 2015-16 on a revenue of Rs 1,506.8 crore, according to RoC filings. Its net loss was at Rs 1,328 crore.