After months of ‘will they or won’t they’, Snapdeal has finally called off the Flipkart buyout deal. It looked like that the merger would be announced any day given that Snapdeal accepted the $950 million offer. But the ‘indemnity clause’ added by the Bansals-led company derailed the buyout plan.
“Over the last few months, our company has been engaged in strategic discussions with other players. A lot of time and effort has gone into the process from all participants in this exhausting process. The process has led to intense speculations and uncertainty for our team, partners and shareholders. And now it is time to finally put an end to this saga,” wrote Snapdeal co-founders Kunal Bahl and Rohit Bansal in their letter to employees without naming Flipkart.
Was the Indemnity Clause the real deal-breaker?
As reported earlier, Flipkart wanted Snapdeal to stay legally accountable for at least a year and a half or 2 years after the merger. But this was unacceptable to Snapdeal, which seems fishy.
It is interesting to note that when Snapdeal lost the Jabong-acquisition deal to Flipkart, Bahl had said,
“We have a high bar when it comes to governance, regulations, and compliance. Unless a company can clear that bar, we have issues… M&A is very exciting when you are doing it. The real work begins after that, and the surprises come after that. I am happy for the people who got all this cash for a company that has all these issues.”
If Bahl understands that the real work begins after acquisition, why not accept the legal liability of its business as requested by Flipkart? Are Snapdeal’s financial reports and business dealings not squeaky clean?
Why solo?
Many reports said that Bahl and Bansal were always against being sold off to Flipkart. It was Softbank that was pushing this deal. With the deal being cancelled, Snapdeal is gearing up for its new innings. The online marketplace has decided to fly solo with ambitious plans for its 2.0 avatar.
“We will be continuing the Snapdeal journey as an independent company… after the last few months of tumultuousness, it is time to focus on the business and leverage all our strengths to progress towards our vision of building the best marketplace to connect buyers to sellers in India,” wrote the co-founders.
Bahl and Bansal listed down the following reasons in their letter for taking the independent path instead of accepting the strategic combination that investors & officials worked on:
- The deal was extremely complex to execute (indemnity clause?)
- There isn’t going to be one successful model for ecommerce in India. In every market, there are multiple successful ecommerce businesses, and as long as one’s strategy is differentiated and has a clear path to success, there is a great company that can be built
- Snapdeal has made tremendous progress and is already profitable at an gross profit (a.k.a. net margin) level, with clear visibility to making upwards of Rs 150 crores in gross profit in the next 12 months
- With the ongoing streamlining of costs and sale of some of its assets, such as Freecharge, Snapdeal is financially self sufficient as a company and doesn’t need to raise additional capital to reach profitability
Aim is to make Snapdeal 2.0 a true marketplace
According to company insiders and industry watchers, Snapdeal 2.0 is going to embrace ‘true marketplace’ identity and would be in no direct competition with Amazon and Flipkart from here on.
“This will be a seller-centric marketplace similar to Alibaba-owned Taobao in China and eBay in the US. The management has been working on this plan for the past two months… It will be more like Taobao and it will be much easier for sellers to sell. In the segment Snapdeal choses to operate, it will be more of a local ecommerce, asset-light player. It will not be making fancy “one-day or two-day delivery,” revealed sources.
Employees fired at the beginning of new innings
Snapdeal 2.0 started its operation with a bang by firing employees. As per reports, employees are being handed out 1 month’s severance instead of 3 months. The company might get hit by heavy attrition as well because many were waiting for the bonuses as promised after acquisition.
“Many of them were waiting around for the retention bonus which would have come with an acquisition by Flipkart. Now there is no reason for them to be around. Over two to three months, we expect the (employee) numbers to come down to half.Also, in cases where there maybe a few layoffs, there is no reason why they wouldn’t be paid three months’ severance pay.”
While Bahl is positive about Snapdeal’s new start, it hasn’t been a good start for the marketplace’s employees.
What about Softbank?
Softbank said in its statement that they are happy about Snapdeal’s decision to continue functioning as an independent company and look forward to the results of the new strategy. But industry watchers believe that the investor has lost faith.
“SoftBank has lost confidence on Snapdeal and they are unlikely to invest any more. Snapdeal may sell both Vulcan and Unicommerce to raise capital to experiment with the 2.0 version for at least a year before they turn profitable, or raise more funds,” asserted Satish Meena, analyst at Forrester Research.
Sellers, are you happy with this new development? Are you excited about Snapdeal 2.0?
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