Ecom Express distress sale to Delhivery leaves minority shareholders stranded

Delhivery’s proposed acquisition of Ecom Express’s majority stake—99.4% collectively owned by Warburg Pincus, Partners Group, and British International Investment (BII)—has left approximately ten minority investors, who hold the remaining 0.6% of the company, to navigate their exit options independently.

Delhivery agreed to acquire the Gurugram-based company in an all-cash distress sale worth ₹1,407 crore in April. This is just a fifth of the ₹7,000 crore valuation that the company was attempting to seek through an initial public offering.

“Despite being among the first believers in the company and long-standing shareholders of Ecom Express, we were neither informed nor consulted about the proposed transaction,” said Anish Jhaveri, an angel investor.

Founding investors raise concerns

Delhivery’s proposed purchase is awaiting nod from the Competition Commission of India (CCI), besides other regulatory approvals. Jhaveri, who owns a 0.5% stake in the company, says he is exploring options.

“It would be naive to assume that the voice of minority shareholders, especially founding investors, will go unheard before the appropriate regulatory bodies, including the Ministry of Corporate Affairs and the Competition Commission of India. We are evaluating our options and expect full transparency in the interest of corporate governance and investor rights,” Jhaveri added.

Jhaveri feels that the “waterfall mechanism” clause in investor agreements has greatly diluted his stake and that of early investors. Private equity investors typically include a “waterfall mechanism” clause in share purchase agreements to rank the order in which shareholders will be paid in case of a sale. Those with preferred shares are allowed to take out their investment amount on priority and the capital is distributed among other shareholders after that. This becomes critical in situations where there is a distress sale.

Experts weigh in on minority rights

It is as yet unclear how minority investors will proceed, and whether they have enough legal standing to jeopardise the closure of the deal.

According to Sudip Mahapatra, partner at law firm S&R Associates, “the minority shareholders holding less than 1% of the target company will have very limited ability to oppose a sale of the company. If they have rights under a shareholders agreement, they might be able to make a claim. However, such minority shareholders are unlikely to have significant rights under a shareholders agreement,” Mahapatra said.

Partners Group, Warburg Pincus, Delhivery and BII declined to offer comments for this news story.

Sanket Jain, partner at law firm Pioneer Legal, said that Delhivery is not automatically required to acquire the remaining minority stake in Ecom Express “unless there is a specific contractual obligation to do so”.

“However, since Delhivery now holds over 99% of Ecom Express, it is legally entitled to initiate a squeeze-out process under Section 236 of the Companies Act, 2013, enabling it to acquire the remaining shares at a fair value determined by an independent valuer. Minority shareholders who disagree with the process or valuation have the right to seek recourse before the National Company Law Tribunal or courts,” Jain said.

Layoffs and losses

Ecom Express has seen the company’s revenue take a drastic hit after the entry of e-commerce platform Meesho’s logistics arm in the segment. (https://www.livemint.com/companies/ecom-express-ipo-delhivery-meesho-flipkart-blue-dart-delivery-e-commerce-logistics-xpressbees-shadowfax-11729775612075.html)

Earlier, Mint reported that Ecom Express had laid off over 150 employees since the deal was announced. The company has also cut costs and shut down some centres, Mint reported.

The company’s expenses marginally rose to ₹2,921.5 crore in FY24 from ₹2,902.8 crore in FY23. Ecom Express reported a 2.2% growth in revenue to ₹2,609.2 crore in FY24, and its losses declined to ₹255.8 crore from ₹428.1 crore in the previous year.