Zomato- Blinkit Merger

Article collated with inputs from internet to facilitate an M&A class discussion at IIMK EPGP program by Prof.
Kamal Kishore Sharma.

Credit: https://chat.openai.com/

Summary: The merger between Zomato and Blinkit represents a significant milestone in the
food delivery industry. By combining Zomato's extensive reach and Blinkit's advanced
delivery management system, the merger promises to elevate the last-mile delivery
experience to new heights. Through enhanced efficiency, technological advancements, and
market consolidation, the Zomato-Blinkit merger sets the stage for a more seamless,
customer-centric, and technologically-driven food delivery ecosystem. As the industry
continues to evolve, such collaborations are likely to shape the future of food delivery,
ensuring prompt and reliable deliveries, benefiting both businesses and consumers alike.

Implications for the companies and the customers:

1. Enhanced Delivery Experience: The integration of Blinkit's delivery management

system with Zomato's platform is expected to revolutionize the delivery experience for both
customers and restaurants. With optimized routes, real-time tracking, and improved
coordination, customers can enjoy faster and more reliable deliveries. Restaurants, on the
other hand, benefit from increased efficiency and reduced delivery costs, leading to higher
customer satisfaction and loyalty.

2. Market Consolidation: The Zomato-Blinkit merger signifies a trend of market

consolidation in the food delivery industry. As smaller players struggle to compete with
larger platforms, mergers and acquisitions offer an opportunity for market leaders to
strengthen their position. This consolidation may lead to a more streamlined and efficient
food delivery ecosystem, ultimately benefiting consumers through increased choice,
improved quality, and competitive pricing.

3. Technological Advancements: Blinkit's advanced delivery management system brings

cutting-edge technology to Zomato's platform. The merger paves the way for further
technological advancements, such as artificial intelligence-powered route optimization,
predictive analytics for demand forecasting, and automated dispatching systems. These
innovations have the potential to enhance operational efficiency and reduce costs, ensuring
a seamless experience for customers and restaurants alike.

4. Expansion into New Markets: With the merger, Zomato gains access to Blinkit's
technology and expertise, which can fuel its expansion into new markets. The integration of
Blinkit's system can aid Zomato's global ambitions, enabling it to penetrate untapped
regions and cater to a broader customer base. This increased market reach not only benefits
Zomato but also provides opportunities for local restaurants to connect with a larger
audience.
From here on the article has been written by Nikita Rathod. It has been edited by Ojuswi
(Associate, LawSikho) and published by Rachit Garg at https://blog.ipleaders.in/all-about-the-
zomato-and-blinkit-
deal/#:~:text=The%20all%2Dstock%20deal%20between%20Zomato%20and%20Blinkit&text=B2B%2
0provider%20Zomato's%20Hyperpure%20has,for%20every%20ten%20Blinkit%20shares.

Table of Contents
 Introduction
 Zomato’s motive behind the acquisition of Blinkit
o The quick commerce industry
o Customer wallet Share
o Decrease in costs on delivery
o Increased Gross Order Value (GOV)
 Why did Blinkit fail and agree to get acquired?
o Quick commerce operational model
 The all-stock deal between Zomato and Blinkit
 Steps to acquire a company in India
o Steps
 Function of the Indian Securities and Exchange Board
 Influence of Company Law
 Fiscal requirements
 Conclusion
 References

Introduction
Zomato is an Indian restaurant aggregator and a food-delivery public limited company
founded by Deepinder Goyal and Pankaj Chaddah in 2008. Over the years, the Company
expanded its operation in India and throughout 23 countries. Since 2010, Zomato has raised
an aggregate total of $2.5B through equity funding. The Company, despite being a startup,
has acquired 14 companies since 2008. The most recent acquisition by Zomato is UberEats
on 21st January 2020 in an all-stock acquisition followed by the acquisition of an instant
grocery startup Blinkit for a value amount of Rs. 4,447 crores ($569 million) in an all-stock
deal.

Blinkit, formerly known as Grofers, was established in December 2013 by Albinder Dhindsa
and Saurabh Kumar in Delhi as an instant grocery delivery service platform. Over the years,
the company expanded its operations throughout the major cities of India. Blinkit has raised
an aggregate total of $1B through equity funding. Blinkit acquired two companies viz.
Mygreenbox and Townrush on 10th April 2015 and 27th October 2015 respectively. In
August 2021, Blinkit proposed its Unicorn status by raising $120 million from Zomato and
Tiger Global. On 24th June 2022, the Board of Directors of Zomato Limited approved the
acquisition of Blinkit for the value amount of Rs. 4,447 crores. The transaction was
completed towards the end of August 2022.
Zomato’s motive behind the acquisition of Blinkit

The quick commerce industry

Zomato wanted to set foot into the e-commerce grocery industry which was dominated by
Amazon Pantry, Big Basket, Grofers, Swiggy and other players. The Company, already a
multinational food delivery and restaurant aggregator company, did try in getting into the
quick commerce grocery and essentials delivery service time and again but failed. In April
2020, Zomato started a 45-mins grocery delivery service to curb the situation caused by the
COVID-19-induced lockdown, because of which all the restaurants were shutting down. But
later, when the lockdown was lifted, the company resumed its food delivery services.
Zomato re-entered the industry in July 2021 but discontinued because of logistical problems
in September 2021. Zomato by acquiring Blinkit did set a strong foot ahead into the
competition.

Customer wallet Share

Zomato’s customer wallet share will increase after it acquires Blinkit. The company is also
planning to add a Blinkit tab and a Hyperpure tab on its app by which the customers will be
able to place orders for groceries and other essentials on the app, along with regular food
orders from restaurants and Zomato’s Hyperpure which is a B2B supplier for restaurants.
Zomato has been constantly trying to integrate ideas to monopolise the customer base
through all its subsidiary platforms under one roof.

Decrease in costs on delivery

Zomato will be able to decrease its costs on delivery if both companies decide on sharing
their delivery fleet. Quick Commerce-driven Blinkit has a time-bound delivery pattern unlike
that of Zomato’s regular food deliveries which are highly dependent on factors like distance
and quality assurance. Also, because of time-bound delivery, the orders placed per hour are
more in comparison to regular food delivery orders. The Company wants to invest in
building the ecosystem around the food delivery business so that the cost of running a
better food delivery business goes down with time.

Increased Gross Order Value (GOV)

Zomato’s profitability index will increase as the e-commerce business deals in consumer
packaged goods (CPG) brands abundantly. Zomato’s GOV (Gross Order Value) will increase
over time because of its e-commerce-driven business, which will increase its Gross profit
margins. Zomato’s Co-founder and CEO Deepinder Goyal said, “Blinkit’s GOV is fast catching
up with Zomato’s GOV in some key markets, therefore indicating that quick commerce will
add a significant new addressable market to our business in the long term.” According to an
FMCG Company (fast-moving consumer goods), “Quick commerce platforms which facilitate
10-20-minute deliveries, are growing 20-25% faster in volumes than the ones which make
deliveries in four-hour or longer”.
Why did Blinkit fail and agree to get acquired?

Quick commerce operational model

The term ‘Quick Commerce’ is an emerging business industry where the business delivers
the product quickly within an hour or two. The quick commerce operational model has
three foundational aspects, the first one being ‘dark stores,’ the second one being ‘overly
paid delivery boys’ and lastly ‘efficient delivery management system.’

 Dark Stores: Blinkit was starting to delay payments to its vendors because of a cash
crunch. The Company was facing a severe cash crunch as a result of rebranding itself
from Grofers to Blinkit and this in a way was impacting the operations of the business.
The Company consequently had to shut down around 50 dark stores and the
operational cost of the business increased as there was only one dark store covering a
radius of 6-7 km, unlike one dark store per 2-3 km.
 Overly Paid Delivery Boys: Quick delivery is an essential requisite to the quick
commerce business which requires the all-time availability of delivery boys. Blinkit was
facing a severe cash crunch because of which the Company wasn’t able to afford the
required workforce and as a result, many employees were laid off.
 Delivery management system: In view of the above-stated factors, Blinkit wasn’t able
to attain an efficient delivery management system which fully destroyed the purpose
of quick commerce.

The all-stock deal between Zomato and Blinkit

Zomato announced the acquisition of Blinkit on June 24, 2022, for a total price of Rs 4,447
crores in equity. The board of Zomato has authorised the purchase of up to 33,018 equity
shares of Blink Commerce Pvt Ltd from its shareholders for a total purchase price of Rs
4,447.48 crores, according to Zomato’s letter to the BSE. B2B provider
Zomato’s Hyperpure has purchased HOTPL (Hands on Trade Private Limited), a company
that provides warehousing and associated services, from Blinkit for Rs 60.7 crores.
Shareholders of Blinkit will receive one Zomato share for every ten Blinkit shares. Zomato
made a $100 million investment in Blinkit earlier in March 2022 in exchange for a stake of
over 10%.

Function of the Indian Securities and Exchange Board

The shares of the domestic company must be valued in exchange transactions by a
merchant banker who is registered with the Securities and Exchange Board of India.
Compared to “normal share issuances and transfers,” where the price can be verified by
experts like chartered and cost accountants, this need is more onerous.

A number of shareholder rights and shareholder governance issues accompany the share
swap scheme. The acquirer and the target frequently have investors at various stages of the
company’s life cycle, thus if new shareholders are offered the same requirements as existing
shareholders, a conflict may occur.
Influence of Company Law

In India, the National Company Law Tribunal (NCLT) must approve all mergers, and
the Companies Act stipulates that at least 75% of the relevant shareholders and creditors
must also consent to the merger.

A report from a registered valuer chosen by the board of directors or audit committee is
also required in the event of an unlisted corporation. The share swap ratio and this share
exchange transaction must be disclosed prior to the annual general meeting.

Fiscal requirements
A merger must transfer all of the assets and liabilities of the merging company to the
merged company in order for it to be tax neutral, and at least 75% of the merging
company’s shareholders must become shareholders of the merged company. If the merged
company is an Indian corporation and the merging firm’s shareholders get shares in the
combined company in consideration for the transfer, they are free from paying capital gains
tax on the gains under Indian tax law.

Since a share swap involves the shareholders receiving shares of the acquiring firm as part
of the deal and is not a share transfer, Section 68 of the Income Tax Act would not apply to
the transaction. Investors in the acquired company do not pay capital gain tax as a result.

Additionally, merger agreements that involve the transfer, rollover, or set-off of losses from
the merging firm exclusively for tax purposes are closely scrutinised by tax authorities.
Unless Indian tax authorities feel the agreement was drafted to avoid paying taxes or violate
general anti-avoidance laws, a merger plan that has been approved by the NCLT is normally
viewed as tax-neutral.

Conclusion
It is clear that fast commerce is expanding quickly in India. Many conventional retailers
using the brick-and-mortar business model are embracing e-commerce and using cutting-
edge digital tools, platforms, and systems like last-mile delivery software. At this point,
Zomato’s foray into fast commerce appears sensible.

References
 https://www.livemint.com/companies/news/zomato-to-acquire-blinkit-for-4-447-crore-in-all-
stock-deal-11656093457147.html
 https://timesofindia.indiatimes.com/blogs/voices/the-future-of-e-commerce-in-penetrating-
sales-of-fmcg/
 https://www.livemint.com/market/stock-market-news/what-zomato-s-acquisition-of-blinkit-
means-for-the-stock-should-you-buy/amp-11656302241801.html
 https://blog.ipleaders.in/acquisition-by-zomato-of-uber-eats-analysis/?amp=1
 https://economictimes.indiatimes.com/tech/startups/zomato-starts-plans-to-integrate-
blinkit/articleshow/92460333.cms?from=mdr