Amazon Ready To Offer $2 Billion As Breakup Fees For Flipkart Merger; Is It A Game Changer?
This tug of war to acquire and control Flipkart has now reached an interesting point, because now, Amazon has offered a breakup fee to Flipkart.
Walmart is right now doing everything possible to acquire Flipkart. But at the same time, as we reported last week, Amazon too is trying to takeover Flipkart, and stop Walmart’s expansion into India.
This tug of war to acquire and control Flipkart has now reached an interesting point, because now, Amazon has offered a breakup fee up to $2 billion to Flipkart, in regards to the merger talks.
Can this offer of breakup fee turn out to the game changer?
Amazon To Flipkart: Here Are $2 Billion Breakup Fees!
Some insider sources have revealed to FactorDaily, that Amazon is ready to offer up to $2 billion or Rs 13,000 crore as breakup fees to Flipkart.
This clearly shows the serious intent of Amazon in regards to the negotiation talks with Flipkart, and potentially, this can be the gamechanger.
At a time when both Walmart and Amazon are ready to acquire and merge with Flipkart at a valuation of $20 billion, then a breakup fee can instil more confidence and trust in the other party.
Notably, Walmart hasn’t yet offered any breakup fee for the talks.
An unnamed source, who is privy to the insider talks of merger, has said,
“Amazon is keen on the deal and the breakup fee can be anything north of $1 billion in a deal where Flipkart is valued at $18-20 billion,”
What Is Breakup Fee And Why Does It Matter?
A breakup fee, also called a termination fee, is a kind of olive branch extended during a negotiation talk for a possible merger.
Investopedia describes it as:
“A breakup fee is used in takeover agreements as leverage on the seller against backing out of the deal to sell to the purchaser. “
Now, as Amazon is offering a breakup fee of $2 billion to Flipkart, this means that in case talks between them fail, and Amazon backs out, then they are willing to pay Flipkart up to $2 billion, as a compensation for wasting their time and resources.
This is a pure game theory at work here, as the battle has now turned into more of psychological, rather than financial.
In case Flipkart accepts the breakup fee, Amazon will approach anti-trust regulator Competition Commission of India, and file for pre-filing consultation request, with some preliminary details about the merger talks.
Another source said,
“Amazon has offered to sweeten the deal by agreeing to pay the breakup fee of $2 billion… Basically, the stakes are high. Amazon is pushing the offer,”
There is another advantage if Flipkart accepts this breakup fee: Amazon can ask for an extended time of exclusive talks, and this may deter Walmart and discourage them.
There has been no confirmation about this breakup fees from either Flipkart or Amazon.
We will keep you posted, as we receive more details about Indian e-commerce’ biggest acquisition story, as it happens!
Which way should Flipkart move now: Amazon or Walmart? Do let us know by commenting right here!