Online food delivery unicorn Zomato and instant delivery service Blinkit, formerly Grofers, are in talks to acquire 10-minute grocery delivery platform Blinkit (formerly Grofers), which is involved in a merger agreement. Zomato said in an exchange filing that it will extend a $150 million loan to Blinkit to support its capital requirements.
Zomato – a savior for blinkit
Blinkit’s move to merge with Zomato comes at a time when it is struggling to raise funds, forcing it to lay off employees and shut down its warehouses to save cash.
“The proposed investment is subject to precedence of certain conventional conditions and fulfillment of other terms and conditions agreed under the investment agreement executed between the parties,” Zomato said in the filing.
Earlier, Zomato had also invested around $100 million in Blinkit in August last year. At the time, Zomato said it planned to invest a total of $400 million in Blinkit, a part of which would be structured in the form of convertible notes. Zomato had acquired a 9.3 percent stake in Blinkit at the time, but also hinted at a possible merger in the works.
Zomato enters instant delivery business
By planning to acquire Blinkit, Zomato has underscored its commitment to the quick-commerce space. In fact, its investment in Blinkit last year also meant that Zomato would bring groceries back on the platform after it was discontinued in 2020. In its third quarter earnings report, Zomato said it is growing aggressively in the quick-commerce segment and will invest $400 million. in this category over the next two years.
Zomato-Blinkit – A Deal?
The people said Zomato’s acquisition of Blinkit is expected to be completed in 60 days. SoftBank, which had a 40% stake in Blinkit, will get a 4-5 per cent stake in Zomato as part of the transaction, while Tiger Global and Sequoia Capital will get additional shares in the entity, they said, without disclosing more details. .
However, it is worth noting here that SoftBank, one of the major investors of Blinkit, will now hold stock in Zomato through a share swap. Sources say that its stake could be between 4 per cent and 5 per cent. This means that SoftBank will now hold stake in both Zomato and its arch rival Swiggy in the quick-commerce space as well as in the food-tech sector.
Will the market be happy?
However, the timing is not very good for either party. Zomato’s stock is already battered, and the market may penalize it further for getting a cash-fart business. For Blinkit, Zomato’s fallen stock price means that the transaction, a 10:1 equity swap, will drag its valuation below the USD 1 billion unicorn position. Sources say that Blinkit could now be valued at around USD 700 million. Although the merger may be necessitated by intense competition in the quick-commerce space and constant cash burn, reports suggest Blinkit has had to close some dark stores because it was running out of cash.
What should investors do?
Shares of Zomato jumped over 2 per cent on March 16. HSBC Securities India said that the possible merger of Blinkit with Zomato will enable Zomato to enter the online grocery market as well as provide online grocery access to the customers of the food delivery aggregator, which has a large following. Total addressable market.
Meanwhile, BofA Securities believes that infusion of Zomato’s capital in Blinkit will lead to higher losses for the food aggregator, risk of cash calls and Zomato’s earlier move to focus on one core activity for the next few years. contrary to commitment.
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