Homeshop18

Around the 26th of November (2014), employees at Homeshop18’s Bangalore office, where its ecommerce division operated from, were given an option to join Reliance Retail. This was almost a month after Homeshop18 withdrew its $75 million IPO, for which it had filed on April 3rd (2014). “It was a Wednesday,” one employee who left subsequently, told us, “and we were given till the end of the week to decide.” This was expected, and some senior employees, on condition of anonymity, told us that most of them had been in the market for months, securing backup options.

Late last year, Narasimha Jayakumar, COO & Business Head, ecommerce at HomeShop18 left to join Info Edge owned real estate portal 99Acres as its Chief Business Officer. Jayakumar, who had joined the company from Google five years ago, had set up its entire ecommerce division in Bangalore. MaheshTiyyagura, AVP at HomeShop18, has joined Aditya Birla ecommerce as its CTO. Vikram Dasu, from what we’ve heard, has joined D Mart to head Ecommerce, though Dasu hasn’t responded to our query. Sukanta Das, AVP (Operations) told us he has also joined Aditya Birla ecommerce as its COO. Lijo Isac (DGM, Product Management and Digital Marketing) has joined Practo as AVP (Digital Marketing and Consumer Products).

Piyush Bhargav, (VP-Product Management and Digital Marketing) is one of the few senior ecommerce executives to have switched to Reliance Retail. In June 2014, Reliance Retail had announced plans to enter ecommerce. Many others, around 100-125 of them, we’re told, shifted to Reliance Retail. At its peak, a senior (former) Homeshop18 executive told MediaNama, the company had around 300 people in the Bangalore office, though half them were consultants and largely in customer support roles. Most of the others switched to Reliance Retail. The Homeshop18 office in Bangalore is now a Reliance Retail office, and much of HomeShop18’s web business – specifically, category management and sourcing – is largely managed out of its Delhi-NCR headquarters, at Noida’s Film City, multiple current and former Homeshop18 executives confirmed to MediaNama. Following the switch, the Homeshop18 website now sells mostly TV specific products, having taken what one executive called a “TV+ approach” to the business.

A senior (now former) Homeshop18 executive told us that earlier, for the web division, 30% of the inventory was TV specific, while 70% was “long tail. We had over 1000 vendors for the website, and most of them weren’t TV vendors,” he said. Others executives, both current and former, have confirmed this shift in strategy. In November, Homeshop18 had stopped selling books online, and neither Malhotra nor Jayakumar had commented on the reasons for the move then.

At some level, there is a certain rationality in this decision: while both TV and Web businesses have grown for Homeshop18 over the past few years, the pace of growth of its TV business was much more significant. Over a two year period, the revenue contribution of the online business actually declined from 18% to 13%, after peaking in Q2-FY13 at 22%, merely because the TV business grew much more. Homeshop18 was never one to throw caution to the wind, and in a hyper competitive market such as ecommerce in India, with Flipkart having raised $1.91 billion last year, Amazon announcing a $2 billion investment, Snapdeal raising $627 million and Paytm raising $575 million, a $75 million IPO would never suffice. Data, based on the SEC filing:

Homeshop18-TV-vs-Internet

 

homeshop18-tv-business homeshop18-internet-business

What happened to the ESOPs?

In early 2014, Sarvbir Singh, who ran Network18’s investment arm Capital18, joined Homeshop18 as its CFO to take the company to an IPO. Homeshop18 filed its draft prospectus with the US Securities and Exchanges commission on the 2nd of April 2014. The prospectus included a ‘risk factor’:

Independent Media Trust, or IMT, an Indian trust whose sole beneficiary is Reliance Industries Limited, an Indian corporation with shares listed and publicly traded in India, has subscribed for zero coupon optionally convertible debentures in certain companies through which Mr. Bahl holds his interest in voting equity shares of Network18. These convertible debentures are currently exercisable at the option of IMT and expire on October 30, 2022. The conversion of all of these convertible debentures currently would result in IMT holding a majority of the voting equity shares of these companies. Such a conversion would result in a change of control of Network18, although a change of the single largest shareholder and management of Network18 and certain of its subsidiaries would be subject to certain Indian governmental authorizations.

If such a change of control were to occur, then IMT may become the controlling shareholder of Network18 and a beneficial owner of the ordinary shares of our company that are currently held by Network18 Holdings Limited.

Note that these are standard disclosures, and do not necessarily indicate that the Homeshop18 management was aware of how soon and how swiftly things would change at Network18.

On the 28th of May, less than two months later, it happened. B. Saikumar, the CEO of Network18, quit, and this precipitated a spate of departures from Network18, with the companys COO, CFO and several senior executives also leaving (more on that here). On the 29th of May, Reliance Industries made official its plan to acquire Network18. On the 30th, Malhotra held an all hands meeting at its Film City office, informing worried employees that the IPO would proceed, and it would be business as usual. Speaking with MediaNama then, Malhotra said that Homeshop18 has three board members from Network18, and new appointments would be made to the board, given that the three Network18 board members were the group founder Raghav Bahl, and two other employees who had quit: CEO B.Saikumar and CFO RDS Bawa.

Employees were worried then because they had stock options (ESOPs), and shares had vested for many. The Homeshop18 SEC filing made on 10th of April indicates that:

Under the terms of our share option plan, we may grant options for up to 2,733,482 ordinary shares. Currently, each share option is exercisable into one ordinary share. As of December 31, 2013 options for a total of 2,411,500 ordinary shares were outstanding, of which options for a total of 2,036,500 ordinary shares had vested and options for a total of 1,995,750 ordinary shares had become exercisable. As of December 31, 2013, 209,750 ordinary shares had been issued upon exercise of options granted under the plan.

The 2008 stock options plan had the following terms, as indicated in the SEC filing:

Options granted till October 22, 2010 :
Graded vesting — 25% on the expiry of one year from the grant date, 25% on the expiry of two years from the grant date, 25% on the expiry of three years from the grant date and 25% on the expiry of four years from the grant date.

Options granted after October 22, 2010: Options will vest on the expiry of one year from the grant date.

Exercise Period
The options can be exercised within a period of 48 months from the date of vesting.

Some employees we spoke with had around 50% of their options vested, and while some of those we spoke with are still with the company, others have left. Based on our reading of the SEC filing (under the section ‘Lapse of Options’ reproduced below), it may be possible that those who have left have lost not just their stock options, but also the shares that had vested. The specific section:

Vested options that have not been exercised shall also automatically terminate upon the resignation of a grantee or the termination of such grantee’s service, except that:
– If such termination results from a grantee’s total or permanent disability, vested options will remain exercisable for 12 months from the date of such disability;
– If such termination results from a grantee’s death, the grantee’s legal heirs or beneficiaries will have 12 months from the date of death to exercise vested options;
– If such resignation or termination results from a grantee’s attaining retirement age or superannuation, the grantee will have 12 months from such retirement or superannuation to exercise vested options.
– All vested and unvested options shall also terminate upon the grantee’s misconduct. All unvested and vested options will lapse if we are liquidated.

The Homeshop18 filing indicates that “Since April 1, 2010, we (Homeshop18) have issued the following securities (including options to acquire our shares and stock appreciation rights) without registering them under the Securities Act”: Sundeep Malhotra, Narasimha Jayakumar, Atrash Aman, Raman Kumar Gulati, Dhruva Sankararkrishnan Chandrie, Vikrant Khanna, along with  other “Certain current and/or former employees”

Note that we haven’t heard back from Homeshop18 regarding ESOPs.

No official word on this from Homeshop18 or RIL

Please note that none of this information has been officially confirmed or denied by Homeshop18 or RIL, and all the executives we spoke with, both current and former, requested anonymity before speaking. On December 12th, we had sent an email to Sundeep Malhotra, Founder and CEO of Homeshop18, and spoke with him. At the India Digital Summit on January 14th, we met him and requested a response. An email was also sent to Reliance Industries’ corporate communications team on January 12th, apart from a call yesterday, and another email to both Malhotra and RIL corporate communications yesterday. We had sent Malhotra and RIL the following points for confirmation or denial:

1. Last month (December 2014), around 100-125 executives from HomeShop18 in Bangalore shifted to Reliance Retail
2. HomeShop18 had around 300 people in the Bangalore office
3. The specific offer that HomeShop18 employees got for shifting to Reliance came with less than a week to make that decision.
4. The HomeShop18 Bangalore office is now a Reliance office
5. None or most of the employees haven’t gotten any money for the HomeShop18 ESOPs that they had or shares that vested.
6. Category and sourcing for HomeShop18’s website is now being managed from Delhi instead of Bangalore.
7. The Homeshop18 website is now selling only TV specific products. Earlier, 30% of the inventory was TV specific, while 70% was “long tail”. The HomeShop18 website had over 1000 vendors, most of them weren’t TV vendors.

We’ll update this story in case they respond.

(Updates: updated the story with corrected numbering for the points sent to Homeshop18 and RIL at the end; Fixed typos)

Corrigendum: Mahesh Tiyyagura’s name was incorrectly spelt. Apologies and thanks for correcting Mahesh.