SoftBank holds back Paytm-FreeCharge merger until Flipkart, Snapdeal agree to deal

Sunny Sen June 22, 2017
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The Snapdeal-Flipkart merger saga has taken a new twist with the Japanese conglomerate and Snapdeal backer SoftBank applying brakes on a related transaction between digital payment companies Freecharge and Paytm.

Freecharge is a Snapdeal subsidiary that was acquired by Jasper Infotech, the legal entity behind Snapdeal, in April 2015 in a $400 million deal.

As part of the proposed merger of Snapdeal and Flipkart — India’s largest ecommerce company by gross sales — Freecharge was to be folded into Paytm, the No 1 digital payments company in the country, in a deal estimated to be be between $40 million and $50 million.

Two sources independently told FactorDaily that SoftBank wants to go slow on the Freecharge-Paytm merger. The reasoning is that a deal will give the cash-starved Snapdeal funds to keep its operations running and, to that extent, less leverage with SoftBank to close the Flipkart-Snapdeal merger early

But, two sources independently told FactorDaily that SoftBank wants to go slow on that transaction. “SoftBank wants the Flipkart-Snapdeal merger to happen as soon as just now…,” said one of the sources. The reasoning is that a deal will give the cash-starved Snapdeal funds to keep its operations running and, to that extent, less leverage with SoftBank to close the Flipkart-Snapdeal merger early.

Both sources declined to be identified in this story. Snapdeal, Paytm and SoftBank did not comment.

As FactorDaily reported last week, differences continue between Snapdeal board members representing different parties over valuation and others terms in the proposed merger with Flipkart. The merger is being shepherded by SoftBank, which, as another story last week showed, has played a role in bringing Snapdeal to the near-extinction stage it is in now.

“If Snapdeal gets the money (for Freecharge), it will get a runway for the next six to seven months, and SoftBank doesn’t want to take the risk” — the first source

The latest information shows that the situation may have become adversarial between SoftBank and Snapdeal. “If Snapdeal gets the money (for Freecharge), it will get a runway for the next six to seven months, and SoftBank doesn’t want to take the risk,” said the first source.

Nexus Venture Partners and founders Kunal Bahl and Rohit Bansal had put in $17.5 million into Snapdeal on May 29 as emergency funding to keep operations running.

Earlier in May, Paytm and FreeCharge had exchanged term sheets for their merger, initiated by SoftBank, which had announced an investment of $1.4 billion in the acquirer.

Meanwhile, SoftBank has completed its due diligence on Flipkart, after which Bengaluru company will make its final proposal to Snapdeal, said the second source. “It is very likely for SoftBank to hold the FreeCharge deal unless the Flipkart gives the final agreement to Snapdeal,” he said, adding more details will emerge in the coming weeks.

Lead visual: Angela Anthony Pereira