Flipkart’s bid to consolidate its leadership of the Indian e-commerce market today flopped after target Snapdeal decided to reject a $950 million takeover offer and go it alone instead.
The decision leaves Flipkart and Amazon competing intensely for market leadership in future, number three Snapdeal with an uncertain future and China’s Alibaba Group poised on the sidelines for a possible market entry in the next few months.
For the highly fragmented Indian delivery sector, the failed e-commerce sector consolidation bid leaves a more diversified customer base, with three major players rather than two.
Flipkart reportedly bid $850 million for Snapdeal in early July even though the latter had been valued at $1 billion during the due diligence process and as much as $6 billion last year. Snapdeal rejected this offer, prompting Flipkart to raise the offer to $950 million.
But the takeover attempt looked increasingly unlikely last week amid media reports that some Snapdeal shareholders as well as its founders were resisting a deal strongly pushed by major shareholder Softbank, which wanted to compensate for heavy losses at Snapdeal by getting a stake in Flipkart. Several newspapers wrote that Snapdeal might be sold to smaller e-commerce firm Infibeam instead.
Today, however, Indian media cited a clear statement from Snapdeal saying that it had terminated talks with Flipkart and wanted to pursue an independent path in future. "Snapdeal has been exploring strategic options over the last several months. The company has now decided to pursue an independent path and is terminating all strategic discussions as a result,” it stated.
The heavily loss-making company continued: “We have a new and compelling direction – Snapdeal 2.0 – that uniquely furthers this vision, and have made significant progress towards the ability to execute this by achieving a gross profit this month. In addition, with the sale of certain non-core assets, Snapdeal is expected to be financially self-sustainable.”
Late last week Snapdeal sold its payments unit Freecharge to Axis Bank for Rs 3,850 million ($60 million), gaining much-needed cash to cover its operational costs. Snapdeal’s future strategy will apparently be based on creating a large marketplace for third-party sellers.
Meanwhile, Softbank declared that “we respect the decision to pursue an independent strategy. We look forward to the results of the Snapdeal 2.0 strategy, and to remain invested in the vibrant Indian e-commerce space".
Indian media were quick to speculate today that Softbank might buy a sizeable stake in Flipkart rather than continuing to invest in Snapdeal.
Flipkart had not responded to Snapdeal’s rejection at the time of writing. Earlier this year, the company already snapped up eBay India through a major $1.4 billion investment deal involving the US e-commerce group, China’s Tencent Group and Microsoft.
Flipkart, Snapdeal and also second-placed Amazon India all remain heavily in the red as their marketplaces compete aggressively on price while logistics, marketing and other costs continue to outpace revenues.
