As the distress sale of Snapdeal to Flipkart inches closer to closure, one loose end that ex-employees fear may get overlooked – is what will become of their ESOPs. The Economic Times, in a report, says a group of 45 ex-employees of Snapdeal's middle management, who prefer not to be named, have sent a petition to the company seeking answers about value of their ESOPs post merger.
These petitioners have all spent three to four years at the company, and are collectively holding around 10,000 stock options. They are anxious that the investors owning preferential shares in the company, will be first in line for the first payouts – due to the liquidation preference clause, which grants equity investors the right over sale proceeds before employees and even founders. This clause forms part of both, the employee's as well as the investor's contracts.
Sources privy to the workings of Snapdeal have categorically denied receiving any such petition, various news portals have carried tip offs by unknown sources that the employees are reportedly upset at the diminishing value of their ESOPs. The options that the ex-employees hold that were once worth Rs 1.65 lakh each when Snapdeal got its highest ever valuation – $6.5 billion in February 2016, will now fetch them Rs 5,000 each, they heard through the grapevine. Meanwhile, the investors' shares are worth Rs 25,000 each.
“The former employees are miffed about this and have raised concerns that while investors and even founders have been able to negotiate their exits, there is no clarity and parity on payouts to them,” a report carried by The Economic Times states.
However, the same source, who prefers to remain unnamed, said: “What are the employees miffed about? Is the company changing the agreed terms or denying anybody their dues? Equity and preference shares have different treatments – that is basic accounting. And ordinary shareholders are the last to get paid is also basic accounting. Are the employees miffed that we are following accounting norms and contractual terms?"
He added, "Moreover, nobody is getting paid for their ESOPs – neither current, nor ex-employees. So, what is the song and dance about. Where is any proof that company is paying people for their ESOPs?"
In the meanwhile, Snapdeal founders supposedly announced that they wish to give half of their payout of $30 million each as a "retention bonus" to employees, to encourage them to stay on board for six more months while the company transitions.
“If there is a hit it should be proportionately distributed. The investors will be selling their shares at close to Rs 25,000 per unit,” says a former senior executive to ET.
Japan-based Softbank Capital is one of the major stakeholders at the company. These investors were given preference shares at the time of investment, which allows them to raise the valuation of the company even if it is running in losses and earning lower revenues, as explained by Inc42.
As far as the merger is concerned, a Letter of Intent (LoI) has been signed by both parties, and is expected to be signed in the next few weeks.