SoftBank threatens to pull out, can invest in Flipkart independently

The Snapdeal-Flipkart merger, which has been pending for some months, seems to have taken a new turn. Snapdeal’s largest investor SoftBank has threatened to walk out of the deal.

According to a TOI report, as the standoff among investors continues, SoftBank may independently invest in Flipkart without taking along Snapdeal.

The Japanese investment is forced to take such a decision as it is impertinent for 100 per cent of the shareholders to vote for the deal to go through successfully.

SoftBank’s stake in Jasper stood at about 33 per cent, while Kalaari Capital and Nexus Venture Partners owned about 8 per cent and 10 per cent, respectively. Both the founders, combined, owned about 6.5 per cent of the company.

"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 per cent of the shareholders are unhappy with the revised Flipkart proposal," a source said on the condition of anonymity.

The report stressed that the Japanese Internet group is not bound by any clause which stops it from backing Snapdeal's rival Flipkart, however, it may raise concerns about its credibility as an investor if it does take that step.

The rift among investors on the board of directors traces back to March, this year. At the heart of the matter was Snapdeal’s valuation in a potential funding round by SoftBank.

The proposed funding would have lowered Snapdeal’s valuation to less than half the $6.5 billion it fetched in its last funding round in February 2016. But the deal was rejected by Kalaari and Nexus as the valuation drop would have led to a significant increase in SoftBank’s stake and a corresponding fall in others’ ownership.

During this time, Japan-based Internet corporation had also cleared its intention of selling out the beleaguered ecommerce company, initiating talks with Flipkart and Paytm.

Following the development, in April this year, Softbank abruptly cancelled a $150-200 million debt financing it had offered to Snapdeal-owner Jasper Infotech. The move had escalated a boardroom battle involving the online marketplace’s investors.

In July, the deal stuck another roadblock when Premji Invest, the personal investment arm of Wipro chairman Azim Premji, objected over preferential treatment being given to particular stakeholders.

Amidst this, Snapdeal has been continuously rejecting multiple offers from Flipkart. Recently, Flipkart re-sent the proposal, making a final offer of $900-950 million offer to buy Snapdeal, the terms of which are still be agreed upon by approximately 40 different shareholders in the Gurgaon-based etailer.

The report, via sources, stated that SoftBank is of the opinion that Snapdeal at $900 million is a significantly better offer than the alternatives available to the struggling online marketplace.

On Thursday, Snapdeal eventually sold its payments firm FreeCharge to Axis Bank for Rs 385 crore in an all-cash deal. The company’s payment firm had been in talks with various players and went through many roadblocks, eventually clinching the deal.

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