Snapdeal may face investor ire for snapping talks with Flipkart

Ecommerce firm Snapdeal's decision to walk away from the Flipkart deal and revamp itself as a a 'Snapdeal 2.0' could lead to potential litigation as it appears that founders Kunal Bahl and Rohit Bansal may not have taken the board into confidence about the beleaguered company's new revival plan, according to a Moneycontrol report citing two people privy to the development.

Vani Kola, co-founder of Kalaari Capital who till recently was on the board of the company, has publicly criticised the move.

"I am extremely disappointed and shocked with the founders and their disregard for investors and the employees' interest," she said adding that she had no prior information on this and this was something not discussed with her, in an interaction with a television channel.

Snapdeal 2.0 is expected to be a much leaner organisation and will see exodus of a massive chunk of employees.

''When something goes without the agreement of the stakeholders, it can have repercussions. There could be litigation for mismanagement," one of Moneycontrol's sources said, adding that there is also a possibility that the deal could come back to the table in some form or shape.

''Don't immediately know how will it come back or who will be the potential buyer but I don't think it will die so easy as the shareholders' value is eroding if you don't do a deal,'' the person said.

"The fact of the matter is that the founders have gone ahead and taken a decision that the deal will not go through and the Snapdeal 2.0 is to happen. Has the board approved the Snapdeal 2.0? The answer is no," said the second person cited above.

Snapdeal on Monday announced that it has terminated all talks for a distress sale to Flipkart and wants to pursue an independent path. (See: Snapdeal, Flipkart call off merger deal). 

Key stakeholder Softbank however said that it supported the company in its decision and will ''look forward to the results of the Snapdeal 2.0 strategy''.

Without specifying whether or not Softbank will invest more money in Snapdeal, it further said it will look forward to ''remaining invested in the vibrant Indian e-commerce space''.

Softbank is reported to be in talks with rival Flipkart to invest USD 1.5-2 billion.

Snapdeal hinted that it might not require external capital immediately, saying, ''With the sale of certain non-core assets, Snapdeal is expected to be financially self-sustainable. We look forward to the support of our community, including employees, sellers, buyers and other stakeholders in helping us create a designed-for-India commerce platform.''

Suvir Sujan, co-founder of Nexus Venture Partners, and Akhil Gupta (independent director) who are on the board of Snapdeal did not immediately respond to emails from Moneycontrol.

Responding to a questionnaire, Snapdeal said, "The path to profitability being pursued by the company till date is as approved by the board in March 2017. The company will continue to seek guidance and direction from the board in further execution and detailing of such plans." However, it did not specify whether or not this move had an in-principle approval from all the stakeholders.

A third person who has been involved in the development said requesting anonymity that the decision to not to go ahead with the deal has been endorsed by all the key people like Softbank, Nexus and the promoters. It's a clear and final decision and a single shareholder like a Kalaari Capital cannot decide for everyone.

"In this deal, Kalaari has already taken out a decent exit besides they had a special payment promised by Softbank if the deal went through and there are discussions about them getting an additional investment from Softbank. It is them, if at all anyone who are not working in the interest of the company," the person said.

He added that if the deal with Flipkart had happened it would have been worse for employees. "There is likely going to be some reduction in people, but in the Flipkart deal it was very likely that almost 90 per cent of the employees would have lost their jobs over the next 6 to 12 months."

The employees, however, had retention bonuses if the deal with Flipkart went through. With Snapdeal 2.0 there isn't an immediate clarity on what sort of severance will be paid to the employees.

While the person quoted above did not rule out the possibility of a litigation, he said that there was "zero possibility of the deal coming back on the table".