Snapdeal-Flipkart merger stuck over deal clauses

Indemnity, non-compete clauses make Snapdeal shareholders 'uncomfortable'

Six board meetings and countless man-hours of deal-making later, the proposed Flipkart-Snapdeal merger has hit a block over many clauses and conditions set by the Bengaluru-based e-commerce company, sources said. 

Indemnity and non-compete clauses are among the terms making shareholders of Snapdeal “uncomfortable’’, leading to further delay in the deal getting stuck, Business Standard has learnt. Lawyers from Snapdeal have been trying to negotiate removal of certain clauses, which they believe would have a negative effect on the board and other shareholders in the company long after completion of the merger, sources said.

In fact, the legal teams from the two sides have been in discussions on the clauses in the merger document over the past few weeks.

Flipkart did not reply to emailed queries on the subject. Snapdeal declined to comment.

“There are a lot of non-standard clauses which Flipkart wants Snapdeal board to agree on. For example, the marketplace major wants indemnity for at least two years for any financial losses or other troubles which might happen post merger,” sources close to Snapdeal board said.
 

It means Flipkart wants protection from all the decisions taken by Snapdeal board which might have an effect on the company post-merger for a period of two years. Snapdeal investors such as Nexus Venture Partners, Kalaari Capital and others who are looking for an exit would remain tied up for a considerable amount of time.

Snapdeal board is negotiating with Flipkart for a better valuation. While earlier Flipkart valued Snapdeal at $700 million after talks upped it to around $850 million. However Snapdeal board is asking for at least a billion dollars for the company.

Flipkart wants the board to agree to a non-compete clause, which would stop the investors from putting money in any company which has similar operations as the Bengaluru-based company.

“The board does not want to agree to such demands. A clause by clause discussion is happening at present. These smaller, finer but crucial details are the main reasons behind the delay. The legal teams and the board are on it, but as of now things are at a standstill,” added the source. Snapdeal, which has been in the middle of staff retrenchment and shutting of smaller portals such as Exclusively and Shopo,  has not made any headway with Infibeam either. Infibeam has come on record to say it’s not in any talks with Snapdeal. “Those were informal talks and nothing concrete has come out of it as of now,” sources said.

Talks for a possible sale of Snapdeal to Flipkart began about five months ago. SoftBank, the largest investor in the Kunal Bahl and Rohit Bansal-founded company, has been spearheading the discussions. Till now, Flipkart is the only contender that has sent a formal bid. However, the exclusivity deal with Snapdeal board has ended and the board is free to have discussions with others for a deal.