07 Apr 2017 12:13 IST

No cash payout likely in Flipkart, Snapdeal merger

SoftBank may invest $1.5 b only in the merged entity

The expected merger of Snapdeal’s holding firm, Jasper Infotech, with 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.

In another development, sources in Snapdeal told BusinessLine 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.

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.

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 BusinessLine 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.

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