Bengaluru: Snapdeal, run by Jasper Infotech Pvt. Ltd, has walked away from a potential sale to Flipkart and will now try and survive as an independent entity by selling its logistics unit and cutting costs.
The decision is a win for Snapdeal founders Kunal Bahl (chief executive officer) and Rohit Bansal (chief operating officer), who were against the sale from the beginning. For now, they have won the bitter boardroom battle against Snapdeal’s largest investor SoftBank Group Corp., which was pushing for the sale to Flipkart.
“Snapdeal’s vision has always been to create life-changing experiences for millions of buyers and sellers across India. We have a new and compelling direction—Snapdeal 2.0—that uniquely furthers this vision, and have made significant progress towards the ability to execute this by achieving a gross profit this month. In addition, with the sale of certain non-core assets, Snapdeal is expected to be financially self-sustainable," a Snapdeal spokesperson said.
In a letter to employees, a copy of which was seen by Mint, Bahl and Bansal said the company was on its way to “upward of Rs150 crore in gross profit over the next 12 months". It was “financially self-sufficient", they added, and will not “need to raise additional capital to reach profitability".
While the Snapdeal founders got their way, the end of the sale talks comes as a blow to many of the company’s 25-plus institutional investors, who now have no exit option in sight for an investment that has soured badly. Snapdeal, which has raised roughly $2 billion since starting out in 2010, was in talks to sell itself to Flipkart for $850 million, a fraction of the $6.5 billion valuation it touched in February 2016. Even so, investors and analysts considered the $850 million price tag too high for a company whose monthly gross sales had dropped to less than Rs350 crore—lower than that of Flipkart’s fashion unit Myntra.
Vani Kola, Kalaari Capital’s managing director, who resigned from the Snapdeal board in May, said in an interview with the ET Now television channel that Snapdeal’s decision to end talks with Flipkart was not in the “best interests" of a majority of Snapdeal shareholders.
“…in reading the statement in the news that the company has now decided to pursue an independent path and is terminating all strategic discussions, I’m extremely disappointed and shocked, in fact, about the founders and their disregard for investors and employees’ interests," Kola said.
A spokesperson at SoftBank, which has pumped nearly $1 billion into Snapdeal, said the Japanese investor would “look forward" to the results of Snapdeal’s new plan.
“This decision (to stay independent) was taken by the founders and the company and SoftBank will support it, since we always support the company and the founders. We’re a shareholder. The company had options and this is what it picked," said Kabir Misra, managing partner at SoftBank.
SoftBank is separately continuing talks to buy shares worth $1.5 billion in Flipkart, a person familiar with the matter said on condition of anonymity.
The end of the talks will also disappoint several past and present Snapdeal employees who had hoped to earn some cash by selling their shares in the company. For some of Snapdeal’s existing employees, there’s more pain to come.
Snapdeal, which last week sold its payments platform Freecharge for Rs385 crore in cash to Axis Bank, is trying to raise more money by selling its logistics unit Vulcan Express, said two people familiar with the matter, asking not to be identified. In its new avatar, Snapdeal’s main focus will be to cut losses by reducing logistics costs, cutting discounts further, changing its product assortment and reducing its workforce.
Snapdeal plans to reduce its workforce of 1,400 to anywhere between 750 and 900, the two people cited above added. The company wants to tap unorganized retail in India and get it online, the people said. Snapdeal will also try and push local commerce by connecting sellers to customers nearby, a fourth person said on condition of anonymity. It will cut its offering of high-value items as well as those products that customers want delivered quickly, the person added.
Snapdeal will instead add millions of new products that aren’t currently available on internet shopping sites, the person said.
Last week, it seemed like the on-again-off-again Snapdeal-Flipkart deal would finally close. On 26 July, the board of Jasper gave the go-ahead to the company to continue negotiations for a Snapdeal sale to Flipkart, which had increased its buyout offer to $850 million two weeks ago. But over the weekend, Snapdeal and Flipkart cancelled a key meeting that was scheduled for Monday.
Three major reasons killed the deal: one, Bahl and Bansal were opposed to it; two, some of Snapdeal’s minority shareholders were against the proposed payouts to Nexus Venture Partners, Kalaari Capital and the Snapdeal founders; three, SoftBank wanted Flipkart to change the deal structure, which would have imposed tax liabilities on SoftBank.
Over the weekend, the Snapdeal founders and SoftBank tired of the months-long negotiations that hadn’t yielded much progress and accepted these issues wouldn’t be resolved, ending hopes of an unlikely merger.