Zomato-Blinkit deal: Online food delivery company Zomato and instant delivery service Blinkit, formerly Grofers, are in talks to acquire 10-minute delivery platform Blinkit (formerly Grofers), which has entered into a merger agreement. Zomato said in an exchange request that it will provide a $150 million loan to Blinkit to support its capital requirements.
Zomato – A savior for Blinkit
Blinkit’s merger move with Zomato comes at a time when it struggles to raise funds, forcing it to lay off employees and close its warehouses to save money.
“The proposed investment is subject to the fulfillment of certain customary conditions precedent and other terms and conditions agreed upon under the investment agreement entered into between the parties,” Zomato said in the filing.
Before that, Zomato also invested about $100 million in Blinkit in August of last year. At the time, Zomato said it plans to invest a total of $400 million in Blinkit, some of which would be structured as convertible bonds. Zomato acquired a 9.3 percent stake in Blinkit at the time, but also hinted at a possible merger in the works.
Zomato steps into fast delivery business
By planning to acquire Blinkit, Zomato has underlined its commitment to the quick-commerce space. Last year’s investment in Blinkit even meant Zomato would bring groceries back to the platform after it shut down in 2020. the next two years in the category.
Zomato-Blinkit Deal: Who Gets What?
Zomato’s acquisition of Blinkit is expected to close within 60 days, the people said. SoftBank, which had a 40 percent stake in Blinkit, will receive a 4-5 percent stake in Zomato as part of the transaction, while Tiger Global and Sequoia Capital will receive additional shares in the entity, they said, without disclosing further details. to make.
However, what is worth noting here is that Softbank, one of the major investors in Blinkit, will now hold shares in Zomato through the share swap. Sources suggest the stake could be between 4 and 5 percent. This means that Softbank will now have a stake in both Zomato and its arch-rival Swiggy in the food-tech sector, along with the quick-commerce space.
Will the markets cheer?
According to market experts, the timing is not right for both parties. Zomato’s stock is already battered and the market may punish it more for acquiring a money-grubbing company. For Blinkit, Zomato’s depreciated stock value means the transaction, a 10:1 share swap, will drag its valuation below $1 billion unicorn status. Sources say Blinkit can now be valued at around $700 million. However, the merger may have been necessitated by fierce competition in the quick-commerce space and the ongoing cash shortage, with reports suggesting that Blinkit has had to close a few dark stores as it ran out of cash.
Samir Bahl, CEO, Investment Banking at Anand Rathi Advisors, explained the likely effect of the share swap agreement: “May put some pressure on the stock in the near term depending on the share swap ratio and final valuation assigned to Blinkit shares. . The Blinkit’s business is under pressure, but in the long run the addressable market is huge and Zomato’s significant network and resources can be used to create value for shareholders.”
What should investors do?
Shares of Zomato rose more than 2 percent on March 16. HSBC Securities India said Blinkit’s potential merger with Zomato will give the online grocer access to the food delivery aggregator’s customers and allow Zomato to enter the online grocery market, which has a larger total addressable market.
Meanwhile, BofA Securities believes that Zomato’s capital injection into Blinkit would lead to higher losses for the food aggregator, increase the risk of a cash call and violate Zomato’s previous commitment to focus on one core business for the coming years. .
On whether investors should buy the newly-listed shares, Divam Sharma, founder of Green Portfolio, said: “Zomato currently trades at a valuation of less than $8 billion. For retail investors, we recommend avoiding the stock for now and waiting for the growth and synergies of investments and the acquisition of Blinkit. We would also like to see growth in the core business, which is food delivery, as other synergies need time to think.”
At 12:40 PM, Zomato’s shares fell 0.065 percent against Rs 76.55 on the National Stock Exchange.
Disclaimer:Disclaimer: The expert opinions and investment tips contained in this News18.com report are their own and not those of the website or its management. Users are advised to contact certified experts before making any investment decisions.
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