The Snapdeal-Flipkart merger has hit a new roadblock. While negotiations and due diligence for the sale of Snapdeal to Flipkart is underway, Mint reports that the board of Snapdeal has rejected an offer of around $700-750 million from Flipkart.
Flipkart reportedly made the new offer late last week after completing due diligence on Snapdeal. However, with the offer being much lower than Flipkart’s opening bid of $1 billion, it has been rejected by Snapdeal.
But this does not mean that the deal is off. Mint reports that negotiations will continue but the differences over Snapdeal’s valuations will delay the process. The offer has been made solely for the marketplace and does not include its payments arm Freecharge and logistics arm Vulcan.
It has now come down to negotiations between Softbank and Tiger Global Management to decide the final price and the fate of the deal. Softbank is Snapdeal’s largest shareholder while Tiger is Flipkart’s. The sale of Snapdeal was first orchestrated by Softbank after it suffered huge losses on its investment in this Indian ecommerce marketplace founded by Kunal Bahl and Rohit Bansal.
Apart from this deal, SoftBank is also separately in talks to invest in Flipkart and buy a part of Tiger Global’s stake in the online retailer.
Right from the time Softbank proposed the deal back in March, it has been facing hurdles at every step. It started with early investors the next biggest shareholders of Snapdeal Kalaari Capital and Nexus Venture Partners opposing to the sale. Several negotiations later, Softbank succeeded in bringing them on board.
And while due diligence was underway, one of Snapdeal’s smaller investors PremjiInvest - Azim Premji’s investment firm – wrote to the board expressing its dissent over the proposed sale, especially to do with the amount being paid to the founders and other shareholders.
When the deal goes through, Bahl, Bansal, Kalaari and Nexus are expected to receive cash payouts as part of the proposed deal.
If it goes through, Amazon will see tough competition with Flipkart becoming the largest ecommerce marketplace in India.
Flipkart has been growing aggressively to maintain its market leadership position in the India ecommerce space. Most recently, it bought the Indian operations of eBay and also acquired fashions etailers Jabong and Myntra over the past few years.
In the ecommerce war in India, Snapdeal couldn’t manage to stay afloat and suffered huge losses leading to its sale to Flipkart. According to the report, Snapdeal, which has raised nearly $2 billion in cash, hit a peak valuation of $6.5 billion in February 2016 when it received $50 million from investors.
It is now in talks with Paytm to buy its payments arm Freecharge for a proposed $40-50 million as against the price of $400 million that is acquired it for back in April 2015. It is also looking to sell of its logistics arm Vulcan Express.