Snapdeal, Flipkart merger on cards as SoftBank-led talks intensify
BT Online March 28, 2017
The Indian online retail space is likely to see the biggest consolidation in the near future with a TOI report stating that a merger between Flipkart and Snapdeal is on cards.
Japanese firm SoftBank, which is pushing for the mega merger, is likely to invest up to $1.5 billion for around 15 percent stake in the merged entity, people close to the development told The Times of India.
SoftBank is the largest investor in Snapdeal with a little over 30 percent stake.
Flipkart's largest investor New York-based Tiger Global may sell shares worth $1 billion along with an infusion of fresh equity by SoftBank according to the broad contours of the deal.
Tiger Global is expected to sell about 10 percent stake of its around 30 percent stake in Flipkart.
SoftBank is reportedly exploring three options for Snapdeal-merge with Flipkart, combine with Alibaba-led Paytm, or a writedown of SoftBank's investment to zero.
Discussions for the deal have been taking place since February and are likely to culminate into a definitive transaction by late April.
Founded in 2010, Snapdeal was valued at $6.5 billion after a fund-raising last year. But valuations of Indian e-commerce firms are believed to have softened since then.
Bruised by intensifying competition with bigger rivals Flipkart and Amazon, Snapdeal laid off 600 employees and its founders are foregoing salaries as it cuts costs to try to turn a profit. Snapdeal, however, stressed that it has no intention of selling the company.
A Snapdeal executive said the board about two weeks ago had approved a plan to turn profitable and identified a "small gap in funding." Any fundraising would be intended to strengthen its finances ahead of a planned listing, which sources say the company was trying to achieve within two years.
Snapdeal has been seen as particularly vulnerable to increasing competition. The company reported a loss of Rs 29.6 billion in the financial year to March 31, 2016, according to regulatory filings.