Home TECH Prosus just saved $100 million in BillDesk deal breakup fee

Prosus just saved $100 million in BillDesk deal breakup fee

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Prosus’ deal to acquire online payments company BillDesk for $4.7 billion included a breakup fee of around $50-$100 million, people in the know of the matter told ET. This clause is, however, unlikely to kick in for Prosus (formerly Naspers) as it terminated the deal citing a condition precedent (CP) which had not been met by September 30, the long stop date, they said.

A breakup fee is a predetermined penalty that a buyer typically pays if it walks away from a transaction. A long stop date is the date by which the deal conditions must be satisfied (or waived) for it to be completed.

Sources said Prosus seems to have waited till September 30 to ensure it would not be liable to pay the penalty.

“Prosus could have decided to terminate the deal earlier as well… Why would they wait till the long stop date? But doing it after the long stop date secures them….,” said another person.

Talks on renegotiating the deal size down to $3 billion had not been successful as BillDesk was not in favour of it, said a third person on condition of anonymity.

A spokesperson for Prosus declined to comment on the breakup fee component, while BillDesk cofounder MN Srinivasu did not respond to ET’s emailed queries until press time on Monday.

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“Certain conditions precedent were not fulfilled by the September 30 long stop date,” Prosus cited as reasons for terminating the deal on Monday.

Breakup fee is common in large-ticket mergers and acquisitions. Recently, when Tesla Inc co-founder Elon Musk reneged on buying microblogging platform Twitter for $44 billion, it was reported that he would have to pay $1 billion in breakup fee. It would have been the same if Twitter had cancelled the transaction.

Prosus-owned PayU recently received approval to acquire BillDesk, a Mumbai-based payments gateway firm, after the deal was stuck with India’s antitrust watchdog, Competition Commission of India (CCI), for a year.

PayU India had said that the proposed transaction “involved novel assessment by the CCI of dynamic digital markets”.

“Prosus firmly believes that this acquisition of BillDesk will have significant pro-competitive benefits for the Indian economy and will strengthen the Indian digital payments market, which is fully regulated by the Reserve Bank of India…,” it had said.

ET reported on September 6 that Bengaluru-based
Acko had signed a term sheet with PayU, owned by Prosus, but the South African conglomerate decided not to go ahead with the financing due to turbulence in the broader market.

“Prosus won’t have to pay a fee or any damages to BillDesk or make payments for damages since the deal could not be completed in the mentioned deadline of September 30. The deal ended due to natural consequences of the timeline being missed, and Prosus didn’t want to wait or extend it since market conditions are fast changing,” said a person who is aware of Prosus’ views on the matter.

CCI’s delay in approving the deal was also one factor that caused Prosus to change its mind, sources told ET.

“When the deal was signed, market conditions were far different but by the time CCI came back with its approval, a lot changed…Maybe if CCI had approved the deal in 60 days versus a year, the outcome would have been different,” said another person.

In the past, PayU India has closed significant acquisitions in the country, including CitrusPay, digital payments firm Wibmo and lending platform Paysense, which form a core part of its payment gateway and buy-now-pay-later (BNPL) offering, LazyPay.

PayU has also invested in BNPL startup ZestMoney, online investment platform for stocks and mutual funds Fisdom, and offline-to-online commerce startup DotPe, among others.

According to regulatory filings sourced by business intelligence platform Tofler, BillDesk recorded a consolidated operational revenue of Rs 2,124 crore in FY21 compared to Rs 1,804.69 crore in the previous year.

During the same period, BillDesk made a profit of Rs 245.55 crore against Rs 211.22 crore in the year before.