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Exclusive | Zomato board to sign off Blinkit acquisition on June 17

The share swap deal does not need competition watchdog CCI’s approval as it falls under the 'de-minimis' exemption, Moneycontrol reported earlier

June 06, 2022 / 03:33 PM IST

The Zomato board will meet on June 17 to sign off the acquisition of quick commerce company Blinkit, according to two sources close to the developments.

Although the deal discussions earlier valued Blinkit at $700 million, the value of the final deal is expected to come down as it involves a stock swap of a definite number of shares in the ratio of 1:10 where Zomato would get 10 shares of Blinkit for every one of its shares. 

Zomato was trading at Rs 70.15 on the BSE at the time of filing the story, down from Rs 75-80 levels in March when reports about the acquisition emerged first.

Moneycontrol had reported earlier that the food delivery major may not need the Competition Commission of India’s (CCI) nod to acquire the online grocer as it plans to use the so-called 'de minimis' exemption, which applies to deals below a certain size.

Zomato did not respond to queries regarding the developments. It is expected to notify the stock exchanges soon regarding the same.

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In March this year, Zomato had extended a lifeline to cash-strapped Blinkit through a loan of $150 million to Grofers India Private Limited (GIPL). The food delivery company said in its earnings call recently that the entire amount had not been disbursed, and the rest will be given out depending on whether the company needs it.

“The interest rate for the loan will be 12 percent per annum or higher with a tenor of not more than one year. This loan will support the capital requirements of GIPL in the near term and is in line with our stated intent to invest $400 million cash in quick commerce in India over the next two years,” the listed foodtech company had said at the time in a filing with the exchanges.

In August last year, GIPL raised $100 million from Zomato in a round which gave the company a unicorn status. That deal had gone through the process of getting an approval from the CCI.

One of the sources also said that Zomato will acquire an Indian subsidiary of parent company Grofers International Pte Ltd, which is domiciled in Singapore. The company had shifted its headquarters in 2015 to the South East Asian country which boasted of lighter taxation regulations.

The de-minimis exemption

Sources told Moneycontrol earlier that Zomato has received a legal opinion that recommends using the ‘de minimis’ exemption as Blinkit's turnover is less than Rs 1,000 crore.

‘De minimis’ is a Latin phrase used to describe something that is not significant or important. According to a circular issued in 2016 by the Competition Commission of India, acquisitions where enterprises whose control, shares, voting rights, or assets are being acquired have assets of not more than Rs 350 crore in India or a turnover of not more than Rs 1,000 crore in India, are exempt from the regulator's mergers and acquisitions norms for five years.

In other words, these M&A deals are "de minimis'', and so the parties involved don't have to notify CCI or approach it for approval. The government extended this exemption by 5 more years till March 2027, in a bid to improve the ease of doing business. 

According to people in the know, this is not the first time that Zomato is using the de-minimis exemption for an acquisition. The Gurugram-based company's acquisition of UberEats India, the food delivery arm of ride hailing giant Uber, in 2020 also invoked this provision to steer clear of the CCI.

However, the competition watchdog apparently did not take to it kindly as it launched a probe into the deal few months later. At the time, Moneycontrol had reported that the CCI was looking at two salient aspects of the deal — one, whether the deal was anti-competitive, thereby hurting consumers, and two, whether the two companies should have notified it about the transaction.

Zomato bought UberEats in exchange for a 9.99 percent stake in January 2020 and the deal was valued at around $206 million.
Chandra R Srikanth is Editor- Tech, Startups, and New Economy
Deepsekhar Choudhury Deepsekhar covers tech and startups at Moneycontrol. Tweets at @deepsekharc
first published: Jun 6, 2022 02:36 pm
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