Japan’s SoftBank pushing for merger between Flipkart and Snapdeal

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Flipkart and Snapdeal

Online marketplace Snapdeal, which has been struggling to raise fresh funds, is in preliminary talks with two of its biggest rivals—Paytm E-Commerce Pvt. Ltd and Flipkart India—for a potential sale that could value the company at less than the total equity raised by parent Jasper Infotech Pvt. Ltd, according to three people aware of the development.

SnapDeal top invester SoftBank is pushing for a possible merger with Flipkart next month, potentially laying the foundation for the biggest consolidation in the bleeding domestic e-retail market. A report in the Times of India on Tuesday quoted sources as saying that Softbank was likely to invest $1.5 billion in the merged firm – a stake of around 15%.

Flipkart is the market leader in the ecommerce sector but a better-financed international rival, Amazon, is breathing down its neck. Indian Snapdeal has struggled to keep pace and is currently third. The Indian ecommerce sector has seen explosive growth in recent years, riding on growing internet usage and more customers willing to transact online. But deep discounts and all-season offers to lure more people online has left companies crushed under huge losses. If the merger goes through, the new entity would be the primary competitor to Amazon.

SoftBank, which has invested roughly $900 million of the $2 billion or so raised by Snapdeal, is leading the sale talks, the three said on condition of anonymity. Since the talks are still at a nascent stage, SoftBank is expected to inject up to $50 million as bridge money till a deal is closed, one of the people said.

The news comes days after Flipkart raised $1 billion from China’s Tencents and Microsoft. The company was also in talks to raise another $1 billion, said reports. Discussions of the merger gathered pace in the last fortnight with SoftBank founder Masayoshi Son directly involved, the newspaper said. Domestic players are fighting for market share with Amazon, which has announced a multi-billion dollar war chest for its Indian business, while Chinese giant Alibaba is preparing to enter India in a joint venture with Paytm Mall, One97’s physical goods marketplace.

SoftBank is learnt to have drawn up three options for Snapdeal- merge with Flipkart, combine with Alibaba-led Paytm, or a writedown of SoftBank’s investment to zero, the Times of India reported. The Japanese giant is the leading investor in Snapdeal.

“SoftBank and Flipkart have agreed on the broad contours of the deal. If these terms stay on track, it’s likely that the talks will culminate into a definitive transaction by late April,” a source told the newspaper.

Both Snapdeal and Softbank refused comment while Flipkart told the Times of India that any merger speculation was “false and baseless”. The news comes days after Flipkart raised $1 billion from China’s Tencents and Microsoft. The company was also in talks to raise another $1 billion, said reports.

Discussions of the merger gathered pace in the last fortnight with SoftBank founder Masayoshi Son directly involved, the newspaper said. Domestic players are fighting for market share with Amazon, which has announced a multi-billion dollar war chest for its Indian business, while Chinese giant Alibaba is preparing to enter India in a joint venture with Paytm Mall, One97’s physical goods marketplace.