Flipkart, Snapdeal move a step closer to merger, ink non-binding term sheet

The deal could be the biggest in India's e-commerce space; Snaldeal could be valued at $1 billion

In what will be the biggest merger deal in the Indian e-commerce ecosystem, Binny Bansal-led Flipkart and Kunal Bahl-led Snapdeal signed a non-binding term sheet for a merger of the two giants on Tuesday, according to an ET Now report.
 
The report added that Flipkart was likely to value Snapdeal at between $950 million and $1 billion for this deal. Flipkart is said to begin the due diligence process for the deal very soon.
 
It was earlier reported that after the proposed merger, the Snapdeal brand might cease to exist, unlike Flipkart’s earlier acquisitions – Myntra and Jabong.

 

Flipkart had acquired Myntra and Jabong in 2014 and 2016, respectively. These are being run independently as part of the group. However, according to sources close to the Snapdeal board, within a year of the merger, the legacy of the once second-largest e-commerce player in the domestic market might end abruptly.
 
Other companies owned by Snapdeal’s parent, Jasper Infotech, such as online wallet FreeCharge, acquired in April 2015 for $400 million, might suffer a similar fate.
 
However, the merger might prove to be good for the 1,500 to 2,000 employees of Snapdeal. The company might offer a Rs 193-crore bonanza to its staff when it is taken over by Flipkart, according to an earlier report by Press Trust of India.

 
According to sources quoted by PTI, if the deal goes through, the founders will give a large part of their payout for a proposed scheme which would cover all current employees of Snapdeal.
 
On May 11, Japan's SoftBank, which is a large investor in both Snapdeal and Flipkart, had secured the crucial approval from co-investor Nexus Venture Partners(NVP)  for sale of Snapdeal to Flipkart.
 
SoftBank, the largest shareholder in Snapdeal, had, a month before that, secured a go-ahead from the founders and Kalaari. But NVP had not been in agreement over the valuation suggested by the Japanese firm and hectic parleys had taken place to resolve the impasse.

 
Snapdeal was valued at $6.5 billion in its last funding round in February 2016. The valuation, however, has shrunk since and the potential deal is expected to see Snapdeal being valued at about $1 billion.
 
SoftBank had said earlier last week that it suffered a loss of $1 billion (Rs 6,500 crore) on its investment in Snapdeal during 2016-17, almost matching the money it put in the home-grown marketplace.
 
According to regulatory filings, SoftBank currently owns over 30 per cent in Snapdeal, while Nexus has roughly a 10 per cent stake and Kalaari holds 8 per cent share in the firm.

 
The deal between Snapdeal and Flipkart, when completed, would mark the biggest acquisition in the Indian e-commerce space and change the landscape of the sector that is witnessing intense competition among players.