Early Talks on Merger of Paytm Ecomm, Snapdeal

Jan­uary dis­cus­sions may or may not lead to a deal

The Economic Times - - Front Page - 1,350-1,700 cr

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.

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