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Online food giant Zomato has announced that its Board has approved the acquisition of q-commerce firm Blinkit, putting to rest all speculations which have been floating around since mid-March.
The corporate structure of Grofers International Pvt Ltd has two main parts, Blink Commerce Pvt. Ltd. (BCPL) & Hands On Trades Pvt. Ltd. (HOTPL). BCPL operates the famous q-commerce platform "Blinkit", while HOTPL runs a warehousing & ancillary services business and a B2B trading business. Zomato currently owns 9% in BCPL and 8.4% in HOTPL (collectively referred to as BlinkIt).
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According to the proposed plan, Zomato will acquire BCPL and the warehousing & ancillary business of HOPTL, not the trading business since it no longer fits into Zomato's strategic plans.
The consideration of the deal is a staggering $578 million which will be paid by way of a share swap deal. The acquisition of BCPL will be done by an issue of 629 million shares of Zomato, or an equity dilution of 6.88%, at a price of Rs 70.76 per share. The warehousing and ancillary services business of HOTPL will be acquired for $8 million cash.
The deal is expected to close as early as August 2022. The company is also planning an ESOP pool which will be 0.4% of the total shareholding in Zomato. After the deal, the existing shareholders of Zomato will hold 92.7% while BlinkIt shareholders will have 6.9%.
Albinder Dhindsa, the founder and CEO of BlinkIt, alongside his team, will continue to run Blinkit as the company does not intend to integrate Zomato with Blinkit. The shares offered to the shareholders of Blinkit will have a lock-in period of 12 months and 50% of the shares attributed to the founder of Blinkit will be locked in for a time period of 24 months.
Commenting on the financial performance of Blinkit, the company said that the losses faced by Blinkit have seen a significant decline as the company used operational leverage and improved its execution. Zomato expects the company to have a contribution break even by next year and an Adjusted EBITDA break-even within the next three years.
"Quick commerce has been our stated strategic priority for the last year. We have seen this industry grow rapidly both in India and globally, as customers have found great value in the quick delivery of groceries and other essentials. This business is also synergistic with our core food business, giving Zomato the right to win in the long-term." read the company's letter to shareholders.
The shares of Zomato have been declining significantly since the beginning of this year as it broke through the Rs 100 mark in January 2022. It touched a lifetime low of Rs 50.05 per share last month as it closed at Rs 70.50 yesterday, registering a loss of 50.1% since the beginning of 2022.
Article by Aman Agarwal.
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