Bitter battle ahead? BillDesk shareholders prepare to sue Prosus for walking away from $4.7 billion deal

BillDesk shareholders are preparing to sue Prosus after the global tech investor pulled out of a $4.7-billion acquisition deal by its unit PayU, according to people aware of the company's plans.

The termination of Prosus’ acquisition of BillDesk has come as a shock for the entire ecosystem. It also came as a surprise to PayU’s executives in India and the team and shareholders of BillDesk who were informed of the development only hours before the announcement.

In fact, BillDesk shareholders were not given any further reasons for the termination of the deal beyond what Prosus announced on stock exchanges, according to sources.

A Prosus spokesperson said that the company cannot comment further than what it announced through exchange filings, in response to queries by Moneycontrol. Prosus had not responded to further queries on a possible legal battle at the time of publishing.

Detailed queries mailed to BillDesk co-founder and Director MN Srinivasu did not elicit any response.

“The decision was taken unilaterally by Prosus last Thursday. Even PayU India executives did not know about these plans,” said a fintech founder aware of the developments.

The deal was set to be the largest acquisition in the Indian fintech space, and now it has become an event that makes everything seem uncertain. A sense of discomfort has spread in the Indian fintech space since the termination was announced yesterday. The fate of BillDesk and its investors now hangs in the balance.

“The structure with which Prosus operates is problematic. They have a final say on whether it is a yes or no, PayU does not have a say in that. They are very objective and cutthroat in decision making,” added the founder.

However, this is not the first time that Prosus has backed out of a deal after showing interest. Industry sources say that in the last few years, it has backed out of 3-4 deals. But BillDesk takes the cake as being its biggest acquisition to date and also since it comes after the much-awaited nod from the Competition Commission of India (CCI).

However, the CCI nod came after the regulator sought additional information from the two parties before approving it on September 5.

"Prosus is the most conservative of tech investors- fairly disciplined
they are peace-loving and don't want to be in spaces where there is a tussle with regulators markets also turned completely since the deal was signed," according to an industry source.

After the CCI nod, the companies were awaiting a go-ahead from the Reserve Bank of India (RBI) for the deal.

“This deal falling through will surely impact Foreign Direct Investment (FDI) sentiment towards India,” said an investment banker.

One of the key possible reasons being cited for Prosus backing out is that with a change in market conditions, the company did not see $4.7 billion as a viable valuation. With the deal being a binding agreement, there was no scope for renegotiations either.

"Given Billdesk's revenue and PAT (profit after tax) growth rate, and global multipliers of payment companies like PayPal and Stripe, the real value of BillDesk is now between $2-$3.5 billion," said another fintech founder.

"So the massive price correction that happened in 2022, has made the $4.7B price tag very expensive. So Prosus would have wanted to eke out of the deal because of technical reasons," the founder added.

The move from Prosus also comes at a time when its digital lending plans in India are under pressure after a slew of norms by the RBI.

In an interview with Moneycontrol after the acquisition last year, PayU India CEO Anirban Mukherjee had said that after payments, the second pillar of PayU’s plans in India is digital credit.