Snapdeal decides to go ahead on an independent path

Jasper Infotech has brought an end to the negotiations for the sale of Snapdeal to Flipkart, which has brought an end to nearly seven months of discussions initiated by SoftBank.Snapdeal has said that it will pursue an independent path while Jasper Infotech mentioned that they respected the decision, which brought an end to the months of discussions and speculations. Jasper Infotech, which recently raised the largest pool of private capital assembled for its $100 billion Vision Fund, is now expected to go back to work out the possible modalities of the proposed investment in Flipkart. 

The Managing Director of SoftBank Group, KabirMisra, mentioned that he believed the merger was the right way to go ahead. But since the company and founders have decided on a different path, they will support the decision. One of the company’s earliest investors, Kalaari Capital vented its ire against the move, stating the decision has not received their support. Meanwhile Snapdeal is preparing to lay off a large number of its employees. The founders wrote a letter to the employees on Monday stating their decision to take up an independent path for the company, which they termed as Snapdeal 2.0. They also mentioned that the company had turned profitable in the last few months, at the gross profit level, with clear visibility to making upwards of Rs.150 crore in gross profit in the next one year.

This move was a setback for SoftBank, World’s largest technology investor, which had aimed at consolidating the holdings in India by the merger of Snapdeal to Flipkart and a separate new purchase of the payment arm FreeCharge by Paytm. Both the deals have fallen through. Last week, Axis Bank bought FreeCharge for Rs. 385 crore. The all stock buyout of Snapdeal by Flipkart also meant to result in an investment of $1.5-2 billion in SoftBank. This infusion was earmarked for the acquisition of shares as held by Flipkart’s investor Tiger Global Management.

The investors were unhappy with the decision of Snapdeal. Vani Kola, MD at Kalaari Capital showed her disapproval on the decision by arguing that it was not in the interest of the shareholders. Her firm owns an 8% stake in the company and was due to receive special payout for the sale process. Negotiations for the proposed sale began in January with SoftBank meeting with initial roadblocks from the investors, Kalaari Capital and Nexus Venture Partners. With a grant of pre-determined payouts from SoftBank, the talks were in progress. Meanwhile, investors wrote letters to Snapdeal asking for clarity on the deal and were also contemplating legal action.

Another issue here was that domestic investors in Snapdeal were seeking for a stake in the Flipkart’s Singapore registered entity, which would have violated the Foreign Exchange Management Act Rules. Flipkart had made a second bid in July for Snapdeal which was estimated to be $850 million. Finally, Snapdeal rejected the offer and choose to take up an independent path. For Snapdeal, the immediate impact of this decision will be significant. It will have to lay off a large number of employees. The sale of assets and a cost cutting measure form a major part of the plan to kickstartSnapdeal 2.0 and bring in a new phase of growth.