Why Snapdeal and Flipkart deal fell apart?

It has been about six months since Snapdeal and Flipkart were in discussion for possible merger. The deal could have make sense for both the players since Snapdeal is constantly struggling in aligning its profits and on other part it could help Flipkart in becoming even bigger to compete with Amazon which is pious to grow in India with aggressive plans. Recently, Amazon India has announced to add 14 new warehouses and its aggressive plans to double storage capacity in India. As per leading media reports, Amazon is commitment to spend at least $5 billion for its Indian arm. Of this it has already spent nearly $2.5 billion.

In fact, two weeks ago Snapdeal had cleared the second offer made by Flipkart that was about 970 million dollars. Though both the Founders of Snapdeal Kunal bahl and Rohit Bansal were never happy with the kind of valuation Flipkart was offering. Since, the investors Kalari and Softbank were in favour of merger it was a tentative nod to go ahead with Flipkart’s offer. However, now the things have fall apart and Snapdeal has decided to go with Snapdeal 2.0 which will be a separate entity. Following is an official statement from Snapdeal side’s:

“Snapdeal’s vision has always been to create life-changing experiences for millions of buyers and sellers across India. 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. We look forward to the support of our community, including employees, sellers, buyers and other stakeholders in helping us create a designed-for-India commerce platform.”

Let’s try to understand why the deal fell apart:

All the investors could not come on common ground!

Only stipulation that Flipkart had made for meger was, all minority holders had to give their nod. And, they have to lock their share for two years which does not go well with few investors.  And, Flipkart were looking was 100% Share to go ahead. Since, the founders were not happy they wanted to hold the minority investors. Some of the investers were big names including Ratan Tata. Though they have given the go ahead.

However, few investors including Prem ji invest was concerned about the viability of the deal. They had given the vote of rejection. This move encouraged Snapdeal founders to look for alternative model.

Sale of Freecharge

As per official statement by Snapdeal highlighting they might be making profit may be based on the money that they have recently acquired by selling its digital payment platform Freecharge to Axix bank. The company has secured about Rs 385 crore by this buyout. Due to sale of non core asset Snapdeal is expected to become financially sustainable. They might be able to cut down few increased cost with this money. No, doubt, to an extend this will help the company to bring profit.

Softbank backs Snapdeal decision

Softbank is the majorly stake holder in Snapdeal. So far, they were leading all the discussion. So, their no was a big win to Snapdeal founders who were never in favour of merger. Following is the official statement from Softbank side.

"We look forward to the results of the Snapdeal 2.0 strategy and to remaining invested in the vibrant Indian e-commerce space," SoftBank said in a statement.

What is Snapdeal 2.0?

There is not much clarity on Snapdeal 2.0 but company looking to reduces its cost and human resource. The news is already in public domain stating Snapdeal is looking to reduce its employee base to 200 from 1200. As per leading media reports, the company is also looking to sell its logistics arm Vulcan.

Well, we have to wait till next board meeting to get more clarity on Snapdeal 2.0. Flipkart has already consolidated the market and settled its niche in fashion space by acquiring Myntra and Jabong. As leading media reports has indicated the company aims to raise up to $1 billion in one of its biggest funding rounds so far from an undisclosed source. Infibeam has also shown interest in Snapdeal, what Snapdeal will do from here will be interesting to watch..