PremjiInvests Shows Concern Over Flipkart-Snapdeal Terms of Contract
The potential merger of Snapdeal and Flipkart, which was earlier happening at $1 billion amount, is said to be that now estimated between $300-400 million.
According to media reports, differences continue between Snapdeal board members and other investors over valuation numbers and thus the proposed merger with Flipkart.
The merger is being held back by SoftBank which is playing a major role in bringing Snapdeal to the near-extinction stage it is in now. The Snapdeal-Flipkart merger saga has taken a new twist with the Japanese conglomerate and Snapdeal backer SoftBank applying brakes on a related transaction between digital payment companies Freecharge and Paytm.
Softbank apprehends that, if Snapdeal gets the money (for Freecharge), it will get a runway for the next six to seven months and SoftBank doesn’t want to take the risk. The Indian investors, however, differ on this point.
Freecharge is a Snapdeal subsidiary that was acquired by Jasper Infotech, the legal entity behind Snapdeal, in April 2015 in a $400 million deal. With the potential merger of Snapdeal and Flipkart, which was earlier happening at $1 billion amount, is said to be that now estimated between $300-400 million. Freecharge's deal with Paytm will also be subsequently completed.
Recently, Nexus Venture Partners and founders Kunal Bahl and Rohit Bansal had put in $17.5 million into Snapdeal on May 29 as the company needed emergency funds to keep operations running. Also in May, Paytm and FreeCharge had exchanged term sheets for their merger, initiated by SoftBank, which had announced an investment of $1.4 billion in the acquirer (Paytm).
Meanwhile,SoftBank is working on completing its due diligence on Flipkart so that it gives the final agreement to Snapdeal. After months of negotiations, the Indian investors and representatives of Nexus and Kalaari, the founders (Snapdeal) and PremjiInvest (who has minority stake in online marketplace Snapdeal) are all once again seeking greater clarity on the terms at which the troubled company is being sold to market leader Flipkart.
PremjiInvest is asking, how the rights of minority shareholders will be protected in the event of the sale being finalised. PremjiInvest is also building consensus among other investors, who also hold small stakes in Snapdeal, including Singapore's sovereign wealth fund Temasek and asset manager BlackRock, to potentially oppose special payouts to certain shareholders, as reported by ET.
Such payouts are expected to be made to early investors like Nexus Venture Partners and Kalaari Capital, besides company founders Kunal Bahl and Rohit Bansal. In the month of May, Vani Kola, the managing director of Kalaari Capital, resigned from the board of Snapdeal. Nexus Venture's Suvir Sujan, Bahl and Bansal still hold seats on the board of the company. Individuals who own a stake as small as even 15% are also big stakeholders and cannot be undermined.
In the letter sent to the Jasper Infotech board, PremjiInvest has outlined its concerns over the transaction, which aims to close the sale of Snapdeal to its Bengaluru-headquartered rival for $700 million-$1billion. While SoftBank was earlier expecting the transaction to close by June, it is likely to get delayed at least by another month.
Altogether, the special payments are expected to be about $150 million, and is likely to be borne by the rest of the shareholders, but can only be paid if all of them agree to it. That call will be taken once Flipkart makes its final offer for Snapdeal.
The delay, however, SoftBank's woes, which is the largest investor in Snapdeal with a 33% stake after having invested about $1 billion in the company, and has been pushing for a quick closure of the deal that has been in the works since early this year.
Apart from PremjiInvest, Snapdeal counts investors such as Ratan Tata, Foxconn, Alibaba Group, Ontario Teachers' Pension Plan, eBay and Hong Kong-based hedge funds, among others, who together own about 40% of the company, but do not have board representation.
The anticipated acquisition also has some other questions like, the contract of the deal may have to meet Reserve Bank of India rules on foreign exchange and may have to be specially structured to protect the interest of Snapdeal shareholders.
In the meanwhile, digital payment provider Paytm, which is still in discussions to buy FreeCharge, is now negotiating for "a much a lower price" than the earlier expectation of $40-50 million. The negotiations, are now being led by Nexus Venture Partners’ Naren Gupta. Last month, Vijay Shekhar Sharma-led Paytm sealed a $1.4 billion funding round from SoftBank, which saw its valuation jump to $7 billion, making it India’s second-most valued startup after Flipkart.
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