Soon after news that Swiggy is looking to buy rival UberEats and talks were in advanced stages, reports suggest that the talks have broken down and may not happen after all. Though both the companies have officially neither denied nor confirmed this development, there are reportedly several issues where an agreement could not be reached. Taxation is being cited as one major issue.
Another factor being pointed out as the reason for the deal not materialising is that SoftBank, a key investor in both the startups was demanding that they be allowed to invest in Swiggy at a much lower valuation than claimed, to which Swiggy did not agree.
Swiggy’s valuation is being done against some of the new business initiatives it has taken, like foraying into pharmacy and grocery delivery. And in terms of the size of operations, Swiggy is multiple times what Uber Eats is able to do. As mentioned, taxation or who will bear the burden of taxation is another thorny issue.
SoftBank had tried in vain earlier to merge the two big online food order delivery businesses India, Swiggy and Zomato. That deal is virtually out of the window for the time being. From the perspective of Uber, it is planning an IPO and selling off its food delivery business before that can cause some negative sentiments in the market. It is reported that Uber Eats as an entity is valued at a whopping $20 million in the international arena.
There’s another complex issue related to Uber Eats India. It’s part of Uber BV, an entity registered in the Netherlands. There are issues involved if the deal is done as it is since the employees in India numbering over 100 are on the rolls of an Indian entity, but the parties may escape the taxation trouble thanks to the double-taxation treaty between India and the Netherlands. It will be an issue if they try to transfer the assets to an Indian company. Taxes will then definitely apply. In sum both Swiggy and Uber would want to go back to their advisors on the taxation outcome in the event of the deal going through.
One more contentious issue that seems to have cropped up with the agreement itself is the breakup fee. This is one of the clauses inserted in all such agreements, where to prevent the seller from backing away after having agreed on the deal, a fee is fixed and mentioned in the agreement as payable by the seller if they back out. There is some dispute on this as well, according to the reports.
Though Swiggy and Zomato have been going neck to neck in outdoing each other in terms of the number of orders booked/delivered on a month to month basis Uber Eats, too has been inching up in the scale.