After six months of numerous rounds of discussions to finalise the contours of Flipkart’s acquisition of Snapdeal, the latter said on Monday that it has decided to “pursue an independent path and is terminating all strategic discussions as a result”. The deal between the two e-commerce companies, analysts had pegged, was necessary for these homegrown players to reinforce in a battle for market share against Amazon.
“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. 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,” a Snapdeal spokesperson said.
“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,” the spokesperson added. On July 27, Axis Bank announced acquisition of payments firm FreeCharge from Snapdeal for a sum of Rs 385 crore. The online marketplace company is also reportedly in talks for selling its stake in logistics firm Vulcan Express.
The decision to call-off the deal may come as a setback to Japanese SoftBank Group, which, if the talks went through, would have got a significant stake in Flipkart. However, in a statement, a SoftBank spokesperson said that the firm backed Snapdeal’s decision. “Supporting entrepreneurs and their vision and aspirations is at the heart of Masayoshi Son’s and SoftBank’s investment philosophy. As such, we respect the decision to pursue an independent strategy. We look forward to the results of the Snapdeal 2.0 strategy, and to remaining invested in the vibrant Indian e-commerce space,” the spokesperson said.
Sectoral analysts suggested that while it was imperative for Snapdeal to find a suitor to handle its financial troubles, but the deal did not make much sense for Flipkart except that it could have helped the Bengaluru-based e-commerce firm get backing from SoftBank.
“I was very surprised at why should Flipkart even look at Snapdeal. Flipkart was already a market leader, had better logistics network, the customer flow is much better, the sellers they have is much more than Snapdeal. It was more of a financial merger, and not a strategic merger in any case. At the same time there are multiple investors in Snapdeal, and some of the conditions may not have suited some of them. To manage expectations of various investors in Snapdeal could have been one of the challenges as well,” said Arvind Singhal, chairman and managing director of Technopak.
The SoftBank backing that Flipkart would have hoped for from the deal, experts had said ahead of the deal being called off, would have given it enough firepower to stand against Amazon, which has already committed a sum of $5 billion for investment in India. The race to gain more market share and a wider customer base has resulted in e-commerce firms depending heavily on discount sales.
At the time when the talks with Flipkart for a potential acquisition were still on, along with hiving off its non-core assets, Snapdeal had laid off a number of its employees across various levels, in an attempt to rationalise its costs. According to a PTI report, founders of Snapdeal, in a letter to the employees said that the sale of FreeCharge has resulted in the company becoming financially self-sufficient. “…with clear visibility to making upwards of Rs 150 crore in gross profit in the next 12 months. Finally, with the ongoing streamlining of costs and sale of some of our assets, such as FreeCharge, we are financially self sufficient as a company and don’t need to raise additional capital to reach profitability,” the report quoted from the letter.