SoftBank Tries To Offload Snapdeal To Flipkart – The Board Continues To Bicker

Homegrown ecommerce player Snapdeal is facing grave concerns. Amidst piling losses, complaints, and revoked funding offers, Snapdeal’s biggest backer SoftBank has now reportedly proposed the sale of the company to its nemesis, online marketplace Flipkart.

As per an ET report, marquee investor SoftBank has also proposed that Snapdeal’s shareholders will get one share of Flipkart for every 10 they own in Snapdeal.

Additionally, Snapdeal’s other backers, including Kalaari Capital and Nexus Venture Partners, have asked for $100 Mn each from the proposed sale.

But nothing seems to be final yet. As per a Business Standard report, no conclusion has been achieved as the meeting failed to reach a consensus. The Board of Directors, including the two founders, have refused to agree to the terms of the deal.

The company’s seven-member board currently includes SoftBank (holds two seats), Kalaari Capital, Nexus Ventures, Rohit Bansal, Kunal Bahl, and Akhil Gupta (Vice Chairman, Bharti Enterprises). Earlier, it was also reported that Snapdeal has been looking for a buyer to front $1.5 Bn-$1.8 Bn, with SoftBank leading discussions for the deal.

If the proposed deal falls into place, SoftBank will pick up a 20% stake in the company for $1.5 Bn, while buying out $500 Mn to $1 Bn worth of Tiger Global’s holding in Flipkart, as per the above-mentioned report.

An email sent to Snapdeal and Flipkart did not elicit a response at the time of publication.

Earlier this week, reports surfaced that SoftBank had revoked a debt financing offer, as part of a supposed $150 Mn-$200 Mn funding round, due to a spat among the board members. Earlier last month, it was also reported that Snapdeal’s rivals, Paytm and Flipkart, were in talks to buy the falling unicorn.

Snapdeal’s Investor Woes

Japanese conglomerate, SoftBank, with an investment of around $900 Mn in the company, holds around 33% stake. While Kalaari Capital and Nexus own about 8% and 10%, respectively. The founders, Kunal Bahl and Rohit Bansal, hold just 6.5% stake.

In an earlier boardroom spat between the investors, Kalaari and Nexus had also questioned SoftBank’s intentions regarding Snapdeal, where SoftBank had withdrawn a term-sheet offering Snapdeal debt financing for a period of three years. This move suggested the possible sale of the company.

The Jasper Infotech run company was founded by Kunal Bahl and Rohit Bansal in February 2010, and currently claims to offer over 65 Mn products across 1000+ categories. It also claims to have more than 300K sellers on its platform.

In November 2016, SoftBank Group Corp, which has the highest holding in Snapdeal, marked down close to $555 Mn in two of its Indian investments, cab hailing firm Ola and Snapdeal, as per its six monthly earnings report, ending September 2016.

Later, its CEO Govind Rajan resigned and was replaced by Jason Kothari as the CEO of FreeCharge. The company also committed to invest $57.2 Mn into Freecharge. Snapdeal has raised about $1.76 Bn funding spread across 12 rounds, till date. The firm was valued at around $6.5 Bn in 2015, post the fundraise of $500 Mn from Alibaba Group, Foxconn Technology Group, and SoftBank. In January 2017, Snapdeal reportedly agreed to raise funds from SoftBank at a lower valuation, around $3 Bn–$4 Bn.

After reporting a loss of about $200 Mn (INR 1,328 Cr) on revenue of $140 Mn (INR 938 Cr) in FY 14-15, Snapdeal got off to a bad start in 2016. Since then it has been focussing on cutting costs and getting its loss-making model right.

In February 2017, Snapdeal fired about 600 people from its workforce, in a cost-cutting exercise. In the same month, Snapdeal also stopped the incentive programme for customers that was previously launched through affiliates. In addition to troubles surrounding sellers on non-payment of dues, in March, reports surfaced that the company was planning to give up half of its office space in Gurugram, amidst a cost-cutting drive.

Why Is Flipkart A Strong Contender For Buying Snapdeal

After a series of markdowns, Flipkart finally closed a $1 Bn funding round at a valuation of $10 Bn from undisclosed investors, in March this year. The round was reportedly led by Microsoft Corp., EBay Inc., and Tencent Holdings Ltd. The company is further looking to raise another $1 Bn by the end of this year.

Under the new leadership of CEO Kalyan Krishnamurthy, the company is already heading for profitability (as Binny Bansal stated) in 2018, with acquisition and acqui-hires, a key part of its growing strategy.

Also, with the recent reports on acquisition of eBay’s India operations, the homegrown ecommerce poster boy will hold a stake in one of the US’s biggest ecommerce venture. Ebay, apparently, is also an investor in Snapdeal and holds around 9% stake. In 2014, eBay had led the $133.7 Mn round in Snapdeal.

Flipkart has been continually loading its arsenal to beat Amazon. With Myntra and Jabong already in its kitty, the startup revamped its website in August 2016, for a more user friendly experience. Snapdeal and Flipkart have been archrivals in the Indian ecommerce space. With Amazon in the picture, the proposed deal would give Flipkart breathing room from the intense competition that is the Indian ecommerce market, along with a chance to capitalise upon Snapdeal’s market share.

Alibaba And Paytm: The Other Two Contendors

Snapdeal has been facing a series of downfalls. In contrast, with Paytm mall and Paytm Payments bank already in place, and with CEO Vijay Shekhar Sharma’s entry in the Forbes Global billionaire list, as well as employees profiting handsomely from the sale of Paytm shares, the company’s leadership too is at an all-time high.

On the other side, in June 2016, it was reported that the family offices of Alibaba Group Chairman Jack Ma and Executive Vice Chairman Joseph Tsai, are reportedly exploring investments in India. Since then, Alibaba has reportedly been in talks with Flipkart, ShopClues and now Snapdeal, to merge the marketplace of Paytm with another ecommerce entity, to take on global rival Amazon. Currently, Alibaba owns 40% stake in Paytm and 3% stake in Snapdeal, amongst others.

If we go by stats, then India’s online retail market is expected to reach $69 Bn by FY20, according to Goldman Sachs. Also, South Asia is poised to become one of the world’s fastest-growing regions for ecommerce revenues, exceeding $25 Bn by 2020.

Whether Flipkart or Paytm, as Bill Gross,an American businessman and the founder of business incubator Idealab states, “The most important element that leads a startup to success is – Timing.” And the timing cannot be more apt for any of these players to acquire the $6.5 Bn valued unicorn at a significantly lower price.

Flipkart with its merged entities – Myntra and Jabong – now looks towards number three Snapdeal, to capitalise on the company’s market share and strengthen base against competition from major players Amazon and Paytm. On the other hand, Alibaba, with its latest $200 Mn investment in Paytm has been eyeing the burgeoning Indian market, and looks to capture the larger share of the Indian ecommerce pie.

In all, the Snapdeal acquisition is one bet that will definitively indicate which way the tide will turn for India’s multibillion dollar ecommerce market turn.