Swiggy-UberEats merger falls through over valuation and other contradictions

The much-anticipated merger talks taking place between Swiggy and Ubereats, which was reported to be complete by now, has hit rough weather over valuations and tax issues.

Both food delivery apps are not on the same page over valuations and at the same time Uber is planning to go for IPO in next few months, said an ET report quoting people close to the development as saying.

During merger talks, Uber is said to insist on getting over 20 per cent stake whereas Swiggy, which valued around $3.3 billion, agreed to dilute only half of the claimed stakes by Uber. SoftBank, an existing investor in Uber, had proposed to infuse primary capital at a reduced valuation in Swiggy.

This was not acceptable to a Swiggy investor, who put the food delivery app ahead of its rivals given its recent foray into grocery and pharma, added the sources.

Besides, the potential legal scrutiny by watchdog Competition Commission of India over the deal is also putting them off. As per sources, the deal could attract significant withholding tax implications on unrealised gains made by Uber.

More than anything else, there is also a bigger question over what UberEats deal might add to Swiggy's plates. According to experts observing the space, the deal might only result in killing the third competitor in the segment.

Since February, UberEats has been in talks with Swiggy to sell its Indian business in a share-swap deal. During initial talks, UberEats was valued about $330 million.

Uber saw the deal as a part of its strategy to control losses before going for a $120 billion IPO. It still sees a high loss in the Indian market. UberEats was losing about $15-20 million a month in India.

Started in May 2017 in India, UberEats claims to do over 2 lakh delivery a day with a gross sales run-rate of $200 million. As per an estimate, in comparison, both Swiggy and Zomato bleed $35-45 million a month.

And, they have been successful in keeping the ante high through a constant flow of investments. Last year Zomato raised $410 million from Ant Financial whereas Swiggy raked in $1.3 billion in multiple rounds.