The next 72 hours could prove to be a moment of reckoning for the Indian e-commerce industry. Japanese telecom and internet giant SoftBank is all set to merge its biggest Indian asset Snapdeal with homegrown e-commerce giant Flipkart after clearing the last hurdle in getting Snapdeal’s early stage investors Nexus Venture Partners on board for the deal.
The announcement of the merger is expected in the next two to three days.
The deal values Snapdeal at $1 billion, a steep markdown from the company’s peak valuation of $6.5 billion last year. The markdown perhaps signals the largest consolidation in the e-commerce industry that faces fierce competition between Jeff Bezos-owned Amazon India and Flipkart.
As per information, Flipkart has made an initial offer of $1 billion to acquire its smaller rival Snapdeal in an all-stock deal. A non-binding term sheet is expected to be signed over the next 48-72 hours, after which Flipkart will begin the financial and commercial due diligence of Snapdeal. The complete acquisition could take anywhere between two to three months, the Economic Times reported.
The merger is set to sharpen the battle lines between Japanese SoftBank and Chinese giant Alibaba for supremacy in the Indian market.
The next crucial step for SoftBank – which is learnt to be in discussions to invest separately in Flipkart as well as Paytm – will be to draw a consensus in the board of Jasper Infotech, which runs Snapdeal. The Jasper board is yet to arrive at a decision on the exit payouts to Nexus and Kalaari Capital.
They have, however, agreed to the signing of the deal and also mutually agreed to give a go-ahead for due diligence by Flipkart – a process that could take a month or so.
Masayoshi Son-led SoftBank got veteran Kabir Misra to convince Snapdeal investors to sell their stake. It has taken him more than three months to do it. The Snapdeal board includes Misra, Nexus co-founder Naren Gupta, Snapdeal founders, Vani Kola from Kalaari Capital, independent director Akhil Gupta (who's vice-chairman Bharti Enterprises) and Lydia Bly Jett of SoftBank Group International.
While the board was unanimous in its view that Snapdeal needed to be sold given its poor performance, the bone of contention was its valuation. As per reports, while the board was looking at a valuation of around $2 billion, SoftBank insisted that the valuation could not exceed $1 billion.
While Nexus is speculated to receive $100 million along with a stake in the new entity, Kalaari Capital is expected to get around $70 million to $80 million. Snapdeal founders Kunal Bahl and Rohit Bansal will get around $30 million each post their exit from the company.
"Both founders will not be part of the merged entity in any capacity, post the acquisition of the company by Flipkart," ET quoted people in the know of the deal as saying. Keeping Bahl and Bansal out of the merged entity was one of the conditions Flikart had set for the acquisition to be finalised.
SoftBank currently owns 33 per cent, while Nexus has around 10 per cent and Kalaari eight per cent in Snapdeal, according to documents filed with the Registrar of Companies.
SoftBank had recently stated that it has incurred a loss of over Rs 9,000 crore on its investments in the country's Internet commerce sector.