A few weeks back, we had reported how after 3 months-long deliberations the Flipkart-Snapdeal merger was finally happening with just one big step of due diligence to take place along with several small steps. And now, Kritika Saxena of CNBC-TV18 has learnt from her sources that Snapdeal and Flipkart will be soon completing their due diligence, which means the deal which is being deemed as India’s biggest consolidation in the e-commerce sector is much closer to completion.
The merger took this long to go through because Snapdeal’s early-stage investor Nexus Venture Partners (NVP) was initially not happy with the payout being offered by the Japan-based telecom and internet giant, SoftBank. But, Nexus eventually came onboard when it was reportedly offered a better deal.
Earlier in May, the two companies had reportedly only signed a non-binding preliminary agreement. This means, with the due-diligence expected to be over soon, the companies will sign the final term-sheet in early June and the merger process will officially begin then.
The final deal has ended up valuing Snapdeal at around $1 billion, which is a major fall from its $6.5 billion last year, which was the e-commerce firm’s peak valuation in its short lived lifespan of seven years.
In the first phase of the merger process, SoftBank will buyout Snapdeal’s current investors by making a lump sum investment. Since, it has already bought out Snapdeal’s two founders Kunal Bahl and Rohit Bansal, as well as Kalaari Capital’s stake, NVP is the most important early-stage investor still left. This is expected to cost SoftBank around USD 500.
After NVP, SoftBank will move on to buyout a 10 per cent stake of Tiger Global’s stake, and will be required to invest a fresh amount. In total, the Tokyo-headquartered company will have to put in about a whopping USD 1.5 billion.
Further, since Tiger Global is expected to divest a portion of their stake, SoftBank will have almost 19-20 percent stake in the board of the merged Snapdeal-Flipkart entity. That means, they will have to expand the board and incorporate Softbank executives. However, Tiger Global will still have an almost equal amount of stake as SoftBank and a right of first refusal (RoFR) for any future strategic decisions that have to be taken by the board of the merged entity.
According to Masayoshi Son, SoftBank founder, the deal will prove to be a win-win situation for both homegrown e-commerce players. The merged entity is expected to give a major push to the current cut throat competition brewing between Jeff Bezos’ Amazon and India’s very own homegrown e-commerce leader, Flipkart.