The expected Snapdeal Sale To Flipkart will initially only have changes in the stock-holding structure and not a cash component, sources close to the development said.
Once the merger happens, SoftBank, which owns a substantial stake in Snapdeal, is expected to invest up to $1.5 billion into the merged entity by probably buying out about one-third of Tiger Global’s stake in Flipkart.
It will allow Tiger Global to get back the capital it has invested in Flipkart so far. The two co-founder together own about 6.5% of the company, which at its peak, was valued at about $6.5 billion.
In another development, sources in Snapdeal told that there is a possibility of Paytm picking up Freecharge to consolidate its base in the fintech space.
This acquisition again could involve an all-stock deal.
Meanwhile Snapdeal founders Kunal Bahl and Rohit Bansal have penned a letter to employees urging them to keep calm amid growing uncertainty over the e-commerce company’s imminent future.
Sources in Snapdeal said SoftBank, which owns 33 per cent in the e-commerce player, is unwilling to invest in the company because of its inability to increase its customer base.
Snapdeal has, however, tried to considerably reduce its cash burn per month to about $4 million from $20-25 million last year. It has also over time reduced its employee strength by about half.
In this deal, Nexus Venture Partners, which owns nearly 10% in Snapdeal, is likely to be the worst hit. “A sale at about $950 million would mean the returns are just over 50 cents to a dollar,” a top investor pointed out. Delhi-based Snapdeal raised close to $1.7 billion from investors.
Another reason for Snapdeal’s poor run has been attributed to constant changes in strategy. SoftBank is understood to have changed the directors on Jasper’s board four times in four quarters.
Sources in Flipkart told that by acquiring Snapdeal, the e-commerce giant will be able to get a stronghold in the North and the North-East where it currently does not have a good market share.
Meanwhile, Kalaari Capital and Nexus Venture Partners, which have 8 per cent and 10 per cent stakes in Snapdeal, respectively, have suggested to SoftBank that they would want to opt out of the deal.
Hence, both of them have sought a substantial payout to exit the e-commerce company.
Snapdeal has been valued between $1.5 billion and $2 billion, but sources say it could be less than that as the company has no more than six months of cash to run its operations.