Snapdeal has a 'plan B' in case Flipkart deal fails

Beleaguered e-commerce firm Snapdeal which is in talks with rival Flipkart for a potential stake sale is mulling an alternative survival plan in case the company's stake sale doesn't go through. According to the alternative plan, Snapdeal may witness another round of layoffs which may impact 600 to 1,000 odd employees, two people privy to the development inside the company told Moneycontrol.

There wasn't an immediate clarity as to what the company will do with around 250-300 people left. "This is a backup plan in case the deal doesn't happen. There's no fine print as of now but it may involve shutting down of the company's logistics unit Vulcan alongside all the warehouses it currently runs," said one of the person quoted above.

"The company will look at third parties for warehouses and logistics...(it) will run on a complete marketplace model," he added. Snapdeal currently has about 5-6 warehouses.

Snapdeal currently controls its own logistics and payments. It is likely to route these services through someone else if the standalone plan is to be processed.

According to a third person privy to the development, the standalone plan would include a strategy to run a leaner organisation that can last for up to 24-36 months.

"The plan B would probably mean getting rid of 75 percent of the remaining employees if the deal does not go through. Nothing has been finalised or officially communicated so far but it is just an alternative scenario," another person quoted above said.

"These are all closed door conversations. Survival of Snapdeal will depend on several factors -- if the company manages to raise a round of bridge funding if the Freecharge deal successfully concludes etc etc," he added.

Moneycontrol reported last month that besides Paytm, Snapdeal's mobile wallet firm Freecharge was also in talks with Bank of Baroda (BOB) and Times Internet for an all-cash acquisition. (Read story here)

The Freecharge deal is expected to be in the range of USD 60-75 million.

The money could bring some cash relief to Snapdeal as its internal reserves continue to deplete with each passing day.

Around February, the company was left with around USD 100 million in the bank. Its monthly burn rate was about USD 10 million then.

(Snapdeal's funding rounds. Source: Tracxn)

While it has been paying severance to all the employees who were let go off since then, it has also reduced its monthly burn, since the last few months. The burn is expected to have reduced to about USD 5 million per month now.

Moneycontrol last month reported that Snapdeal had signed a non-binding letter of intent for a merger with Flipkart. Ernst & Young has been roped in by Flipkart to conduct a due diligence on the firm, according to people mentioned above.

The period for the merger deal as mentioned in the letter of intent is estimated to expire during the first week of July. This deal is being pushed by major investors from both the companies mainly Softbank and Tiger Global Management.

Tiger Global is scouting for a partial or a complete exit from Flipkart following an investment from Japanese investor Softbank, depending on the way the deal is structured.

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Without commenting on the issue of layoffs, the third person privy to the development said that the due diligence is almost over. "The first level reports shows that all is clear. There's a certain timeline committed which hasn't got over. So it’s too early to make predictions (for an alternate plan)," he said.

According to an industry expert, who spoke on the basis of anonymity, "The deal is going slow but that is because the structuring of this deal is very different. This is going to be a landmark deal. There are multiple large investors involved. It should take significant time...it has to take care of the regulatory, the stock angle among many other things," he said.

priyanka.sahay@nw18.com

Also read: The story behind Snapdeal's increasing cart of woes