Flipkart, Snapdeal to sign LoI for merger next week

The Indian emarketplace operator Snapdeal is close to signing a letter of intent (LoI) with industry leader Flipkart for a possible acquisition or merger. This development comes a day after Japanese telecom and internet giant SoftBank declared a write-off of nearly $1 billion in the value of Snapdeal.

When contacted by DNA Money, both Snapdeal and Flipkart did not offer a comment. However, sources in the know said the LoI could be signed in the coming week. "It (LoI) hasn't been signed yet but will get done eventually in the next 5-7 days," sources said.

"While a specific valuation for the deal has been agreed upon already, a final sum will be arrived at after the due diligence is over in three to four weeks from the date of signing the LoI," sources said.

However, a PTI report said citing sources that NVP could get close to $100 million and stake in the merged/new entity. While Kalaari Capital could get about $70-80 million, the Snapdeal co-founders would get $25 million each.

With the largest shareholding of around 33%, SoftBank has invested close to $900 million in Snapdeal since August 2013. As for Kalaari Capital, it owns about 8% and Nexus Venture Partners (NVP) holds around 10% stake. The co-founders Kunal Bahl and Rohit Bansal hold 6.5% stake each.

It is learnt that Softbank had already secured a go-ahead from Kalaari Capital however, NVP did not approve of the valuation suggested by the Japanese investment firm. During recently concluded board meeting though, SoftBank reached an agreement with NVP to move ahead with the sale plan.

In its last funding round concluded in February 2016, Snapdeal was valued at $6.5 billion. The valuation, however, has shrunk since then and the potential deal could see Snapdeal being valued at about $1 billion, said the PTI report, adding that Snapdeal's mobile wallet service Freecharge could be sold separately with players like Paytm and MobiKwik being in the fray.

Once completed, the Snapdeal – Flipkart deal would mark the biggest acquisition in the Indian e-commerce space and change the sector's landscape. With intense competition from deep-pocketed global rivals like Amazon and Alibaba-backed Paytm, companies like Flipkart and Snapdeal could face more heat in the coming days.

...& ANALYSIS

• Development comes a day after SoftBank declared a write-off of nearly $1 billion in the value of Snapdeal
   
• Once completed, the Snapdeal–Flipkart deal would mark the biggest acquisition in the Indian e-commerce space