The biggest consolidation move in the Indian e-commerce industry is precariously poised as Snapdeal's largest investor Softbank Corp has threatened to walk out of the deal if all the shareholders in the troubled online retailer do not vote in favour of a merger with Flipkart.
As things stand right now, that may pave the way for SoftBank to independently invest in Flipkart without taking along Snapdeal, sources close to the matter said. "For the deal to go through successfully, 100% of the shareholders need to vote for the sale as it is no more a board decision. That's why it's far tougher to pull this off as it is not only what the board members decide," another source said.
TOI first reported in its March 28 edition that the Masayoshi Son-led SoftBank was orchestrating the sale of one of its most prominent Indian portfolio companies, Snapdeal to rival Flipkart. The deal at the time was a two pronged one, wherein post the sale of Snapdeal to Flipkart, the merged entity would receive about $1.5 billion in primary and secondary capital. Tiger which is the largest shareholder in Flipkart was to sell a bunch of its shares to SoftBank.
But after months of negotiating with various Snapdeal investors to get their support for the deal, SoftBank may finally take the call of moving on in the absence of a full and final approval from all stakeholders, a person privy to the goings-on told TOI.
"Softbank is exasperated by repeated objections and delays triggered by Snapdeal's smaller shareholders. More recently, Snapdeal founders are possibly exploring alternative proposals to merge with other e-commerce firms like Infibeam. There's a sense that Softbank won't pursue the merger even if 5% of the shareholders are unhappy with the revised Flipkart proposal," a source said on the condition of anonymity.
There is no clause which stops the Japanese internet group from backing Snapdeal's rival Flipkart but it may raise concerns about its credibility as an investor if it does take that step, another person close to the matter said.
When contacted, a spokesperson for Softbank did not offer any comments on the latest developments while an emailed query sent to Kunal Bahl, co-founder & CEO, Snapdeal, remained unanswered till the time of going to press.
For now, Flipkart has made a $900 million offer to buy Snapdeal, the terms of which are still be agreed upon by approximately 40 different shareholders in the Gurgaon-based etailer. Most people close to the deal said there are enough chances of the merger not going through as getting a consensus from such a set of myriad investors will be unlikely at this point. Besides the mandatory 100% shareholder approval, another roadblock for the deal has come in the form of some of the clauses that are part of the Share Purchase Agreement (SPA) which Flipkart has put forth. Since the sale talks started, the biggest impediment to the deal had been the boardroom disagreement between majority and minority shareholders in the e-commerce company . A set of smaller investors led by PremjiInvest objected to the preferential payments being made by SoftBank to two of the early investors Kalaari Capital and Nexus Venture Partners.
"Softbank doesn't want to be held accountable if the deal doesn't go through, " said a person privy to the fluctuating fortunes of the deal making. The person said SoftBank is of the opinion that with Flipkart agreeing to merge with Snapdeal valuing itself at $11.2 billion, the same as when Tencent, Ebay and Microsoft invested earlier this year and pegging Snapdeal at $900 million is a significantly better offer than the alternatives available to the struggling online marketplace.
On Thursday, Snapdeal sold its payments firm FreeCharge to Axis Bank for Rs 385 crore in an all-cash deal. The proceeds of the sale will give Snapdeal the much-needed cash to live independently which is one of the options being pursued by Kunal Bahl and Rohit Bansal, the founders of the seven-year-old company. On July 14, we reported that Snapdeal was in talks to merge with the country's only publicly traded e-commerce site Infibeam. At the time we said there were three choices for Snapdeal---close a deal with Flipkart, merge with Infibeam or another player and lastly sell its assets such as Vulcan Express and FreeCharge to shore up funds to stay independent.