While Softbank is pushing hard to sell Snapdeal to Flipkart, a shocker has come its way. An FIR has been registered against Jasper InfoTech Pvt Ltd and Snapdeal employees by a city court have directed the registration under a cheating case. The investigation report is against the Co-founder of Snapdeal, Kunal Bahl and its 11 other executives.
The city magistrate has issued summons to all the parties to appear at the court before May 27. The court was acting on a private complaint filed by Dream Merchants, a Bangalore-based event Management Company that organises Bangalore Fashion Week (BFW).
Retrospection of the issue
As per the complaint, the e-commerce platform, Snapdeal had “dishonoured” the contract by suddenly backing off from the sponsorship of BFW. As per the contract, Snapdeal was entitled to sponsor for three years, but backed off as a sponsor after the first edition.
A contract clause between both the parties restricted Dream Merchants from associating itself with a competitor of Snapdeal to organise BFW, according to Dream Merchants. The event management company had to raise funds and run the event itself.
According to the company, they had approached the police first, but they didn’t register a FIR, then later they had moved to a private complaint on May 17 last year.
After hearing the case, the VIII additional chief metropolitan magistrate ordered early last month: “There are prima facie materials to show the accused induced the complainant to build a fond hope of association for the editions of Bangalore Fashion Week and made the complainant to believe them and enter into agreements with vendors, hotels/venues, models, designers and other co-workers executing promised editions of BFW and misrepresented the complainant while entering into the sponsoring agreement; and without proper reason terminated the agreement unilaterally, causing huge loss to the complainant.”
Merger and Acquisition
Amid all the turbulence, Snapdeal was also going through an economic shock, as the company was already in talks to fire 30% of its staff within two months, plus its merger with Flipkart, as per several media reports.
Snapdeal’s largest investor SoftBank, which is pushing for this deal, has failed to convince Jasper Infotech, which owns Snapdeal, for the sale to Flipkart. Apparently, the board of directors including early investors Kalaari Capital and Nexus Ventures are not willing to agree to the proposed valuation as they find it extremely low.
As per the shareholder agreements, three out of the four major stakeholders — SoftBank Group Corp, early backers Kalaari Capital and Nexus Venture Partners, and promoters Kunal Bahl and Rohit Bansal — who control six of the seven seats on the company’s board, will need to approve the merger of Snapdeal with Flipkart.
If this merger happens, it would be the biggest consolidation in the e-commerce sector in India, and Flipkart will have a significant advantage over other e-commerce portals, as the company already has a database of 100milion users and would gain more. As per reports, a merger could correspond to swapping of both cash and shares for Snapdeal.
Beyond the estimation which goes in the deal, SoftBank is believed to have agreed to provide $100 million in the company as an interim measure. Reports suggest that a term sheet has also been agreed upon to infuse $15 million every month for the next 6-7 months, as mentioned on Financial Express. However, the bad news is that SoftBank has allegedly withdrawn the sheet.
For now, the merger is staring straight at the faces of the investors who are anxious on how the valuations will turn out to be, as the deal can cause jitters throughout the e-commerce industry.