Early Talks on Merger of Paytm Ecomm, Snapdeal
January discussions may or may not lead to a deal
Rica Bhattacharyya & Sneha Shah
Mumbai: About a month back, exploratory talks had been held on merging Paytm’s marketplace with Snapdeal in an all-stock transaction. People familiar with this development told ET that whether the deal will happen is not certain and that if all stakeholders agree, talks may resume again. These people spoke off record, citing confidentiality issues and non-disclosure commitments. ET could not independently verify the complete contours and details of the discussion.
The key player here is Alibaba, the world’s largest ecommerce company, which has a 40% stake in Paytm and around 3% in Snapdeal. Paytm has spun off the marketplace business into an entity called Paytm E-commerce Private Limited, which is raising capital from Alibaba and SAIF Partners.
In the event of a merger between Snapdeal and Paytm’s marketplace, Alibaba will emerge as the new entity’s largest shareholder, assuming no other big, new investor comes on the scene.
The other important player will be Japanese major SoftBank, which is a major investor in Snapdeal, and also has a substantial stake in Alibaba.
“Snapdeal and Paytm have held talks to merge and this deal is driven by Alibaba,” said one person familiar with the matter. Paytm, which has a payments bank licence, marketplace business into separate entity — Paytm E-commerce Private Limited
capital from Alibaba and SAIF Partners Snapdeal and Paytm are waiting to see how the two cos fare in the first two months of 2017
has a deadline of March 31 to spin off its marketplace, as mandated by the Reserve Bank of India.
According to another person with knowledge of the development, the recent capital infusion by Alibaba Group in Paytm’s marketplace will also be a factor in any deal.
Infosys — embroiled in a row between founders and the board over corporate governance — had $4.48 billion of cash and investments on its books on December 31. For Wipro, the amount was $4.88 billion.
At an analyst conference earlier this week, Infosys CEO Vishal Sikka suggested that Infosys would be open to considering buybacks after weighing its strategic needs. “Based on how that mix changes over the next five years, you take a decision on how to utilise the cash. We have done this with 50% so far and as we go through this exercise we will take a look at what we need the capital for,” Sikka had said.
Two former chief financial officers V Balakrishnan and TV Mohandas Pai along with current Infosys board member DN Prahlad had called on the Infosys board in 2014 to implement a Rs 11,000-crore buyback. It didn’t agree to this at the time. But shareholders say it’s time they were rewarded.
“If you look over the last three years, IT shareholder returns have not been good. They need to start looking at ways to boost the returns and buybacks will help put a floor under the share price,” Balakrishnan told ET last week.
Wipro’s Rishad Premji told reporters at the Nasscom event on Thursday that the board reviews its capital-allocation strategy annually.
Cognizant executive Malcolm Frank told ET that Elliott’s letter came even as the company was considering changing its capital-allocation structure. “We had a very simple value proposition to our investors, from IPO until two weeks ago. We were going to grow like crazy, we are going to grab market share, and then we are going to throw off a lot of cash, have very consistent margins, and that’s it,” Frank said. “We thought for us, due to scale we have as a company, we are 260,000 associates. You do a simple math on our growth rates and people model. It’s not in the best interest of our clients.”
But not everyone is convinced that buybacks are the way to go for the industry with automation cutting into revenue and investment needed in digital services.