Online food-delivery platform Swiggy, which is reportedly in discussions to acquire its rival UberEats in India, has amended its internal byelaws to prevent onboarding an investor that also holds stake in its competitor Uber or any of its entities, according to information sourced from business intelligence firm paper.vc and Ministry of Corporate Affairs.
Defining an eligible investor and a competitor, the amended articles of association filed by Swiggy’s parent company Bundl Technologies Pvt Ltd read: “Provided, however, that, for the purposes of this definition of ‘Eligible Investor’, the term ‘Competitor’, in the context of each of Accel, Coatue, DST, Hillhouse, MTDP, Naspers, NVP, SAIF, Tencent, and Wellington, shall be deemed to exclude any Person in whom such Investor holds: (a) such shares or securities as constitute only Primary Exempt Holdings, Secondary Exempt Holdings, and Tertiary Exempt Holdings, or (b) such shares or securities as constitute only Uber Exempt Holdings, which exclusions, in any event, shall apply only to such Investor holding the shares and securities described in (a) or (b) above, as applicable …” Swiggy declined to comment on the development.
To be covered under the Uber Exempt Holdings clause, the company has stated three conditions for investors — first, aggregate ownership of an investor in any Uber entity should not exceed 4.99 per cent of the fully diluted share capital; second, aggregate amount invested in Uber entities should not exceed 20 per cent of total assets under management of the investor and its affiliates; and third, an investor in Swiggy should not have a seat on the board of directors of any Uber entity.
Sunil Goyal, managing director of angel fund YourNest, said that while it is common for companies to have precautionary norms to avoid having investors that may have conflicting stakes, it was not common to name a competitor in the byelaws. “Generally, the board of directors would have a list of competitors that they would refer to,” he said.
“They are trying to prevent any investor that holds stake in competitor company and any Uber entity to hold stake in Swiggy. This is not a common practice but companies often take precautionary measures to prevent their investors holding stakes or sitting on boards of competitors. One wouldn’t want its directors to sit in its board meetings and then sit for a competitor’s board meetings too,” Goyal added.
In its note, paper.vc pointed out that Swiggy’s new investor Coatue, which invested in the Bengaluru-based company along with Tencent in the latest funding round, is an investor in taxi-hailing firms Uber and Lyft. “Coatue is notable because it recently hired Emil Michael, a former Uber executive closely associated with (Uber’s founder and former CEO) Travis Kalanick,” it said.
Underscoring the potential reasons behind Swiggy amending its articles of association, paper.vc said: “For one, they reveal an apprehension of the founders that they have allowed investors who may have a conflict of interest because of their common holdings in Swiggy and its key competitor, Uber. Secondly, any new negotiations for a future financing round are likely to be exceedingly longwinding and protracted because of the sheer complexity of its amending provisions.”
On whether the new guidelines could impact a potential deal between Swiggy and UberEats, Goyal said that the articles could be amended again to suit a transaction, whenever it happens.