Amidst talk of Snapdeal approving the $900 million takeover bid by Flipkart, in a separate deal Snapdeal Board has agreed to sell its digital payments platform FreeCharge to Axis Bank for Rs 385 crore in cash. The bank will acquire 100 percent equity capital of the company for a cash consideration of Rs 385 crore, it said in a notification to stock exchanges today.
Snapdeal had bought FreeCharge with Rs 2,400 crore in 2015, which was the biggest deal in the start-up space at that time.
Meanwhile, the revised $900 million bid from Flipkart is said to have received the approval of the board of Jasper Infotech, which runs Snapdeal. The obstacle remains as the deal is now pending the approval of Snapdeal smaller shareholders. And one of them is Premji Invest, a private equity fund owned by Azim Premji, which has reservations with the differential payments in the deal. On July 17, Flipkart has made a revised offer to Snapdeal.
As part of the all-stock offer of $900 million, Flipkart has offered to pay $650-700 million in stock immediately and the rest at a later date. Flipkart’s offer includes Snapdeal’s marketplace business and software provider Unicommerce. The company is also likely to include its logistics unit Vulcan Express in the sale. The merger between the two companies had been delayed due to disagreements over the acquisition of subsidiaries.
The FreeCharge deal with Axis Bank will help Snapdeal to get the much-needed liquidity in times of the e-commerce crisis which hit them a few months back. While Paytm, and Amazon were in the race to acquire FreeCharge, Axis Bank gave the highest bid to buy the digital payments platform.
FreeCharge will provide Axis Bank with ready high-quality technology in the wallet business. E-payments have surged in India since the government demonetized 500 and 1000-rupee notes in November last year. Providers such as Paytm, backed by Alibaba and SoftBank Group, have rapidly increased their share of the market amid predictions it will jump nearly 10 times to $500 billion by 2020. So it makes a perfect business case for Axis Bank to enter in the space.
The Axis Bank management said at a press conference today in Mumbai that payments are at the core of the bank’s retail strategy and the FreeCharge acquisition fits in with that. "The acquisition was a strategic fit. The platform is a good quality one and we felt the value we paid was good," said Shikha Sharma, CEO, Axis Bank.
FreeCharge has 5 crore customers while Axis Bank has 4 crore customers, according to data provided by the bank.
"Acquiring FreeCharge will allow us to ‘top up’ our services," said Jairam Sridharan, Chief Financial Officer at Axis Bank. The acquisition will help the bank double its customer base, he added.
Axis Bank was represented by the law firm Cyril Amarchand Mangaldas and FreeCharge was represented by J. Sagar Associates. Neither used an investment bank for the deal.
“The big takeaway from the Snapdeal-FreeCharge situation is the fact that the consumer internet market is growing very slowly. This is not China. Just because everyone has internet access does not mean the internet economy is growing,” said Rutvik Doshi, director at the India arm of Inventus Capital Partners to Mint. “And that’s not going to change in the next few years—the GDP (gross domestic product) is not suddenly going to grow at 10-12%. What we have seen so far is too much exuberance and optimism from investors and that’s not going to help. When that happens, you end up with a situation like (Snapdeal and FreeCharge).”