PremjiInvest sent a letter to Snapdeal objecting to the $90 million to be paid to its early shareholders and founders.

Flipkart-Snapdeal merger hits snag as smaller investors object to differential payments
Atom M&A Saturday, June 24, 2017 - 10:27

The path to the Flipkart-Snapdeal merger seems to be full of roadblocks. In a latest development, the deal has hit a snag, which could substantially reduce Snapdeal’s valuation, or even put the deal in jeopardy, reports Mint.

Premjiinvest, the family office of Wipro Chairman Azim Premji, one of the smaller investors in Snapdeal has objected to special payments to certain shareholders including its two cofounders and two early backers.

Flipkart had earlier told Snapdeal that it wants all investors to agree to deal terms as a precondition of the transaction, sources told Mint.

The point of contention seems to be the differential payments. This is being seen as an attempt to win over the larger investors of Snapdeal and the founders who have to agree to a valuation substantially driven down.

Mint reports that under the proposed terms, early investors, like Kalaari Capital and Nexus Venture Partners, would receive $60 million in addition to their new equity in Flipkart, while founders, Kunal Bahl and Rohit Bansal, would get a combined $30 million.

PremjiInvest sent a letter to Snapdeal on Wednesday objecting to the $90 million to be paid to a select group of early Snapdeal shareholders and founders. Another $30 million in special payments proposed by the Snapdeal board for the employees, on the other hand, is okay, the letter said.

The letter said that other small investors were also unhappy with the difference in payments, reports Mint.

The two companies struck a preliminary agreement last month but the talks have bogged down over how Snapdeal’s investors and employees will be compensated.

In the deal shepherded by SoftBank, Snapdeal’s valuation is being reduced to about $1 billion from $6.5 billion. Existing shareholders will be getting a proportionately reduced stake in the combined business, or cash. However, with Premiinvest’s objections, the company’s valuation could tumble further.

Snapdeal’s other small investors include the family office of Ratan Tata, the former chairman of Tata Group, Intel Capital, Bessemer Venture Partners, BlackRock and Temasek.

Investment bank Credit Suisse too, which is advising Snapdeal on the deal is reportedly reaching out to the minority shareholders of Snapdeal to get them on board for the acquisition.

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