Snapdeal calls off merger talks: It could be blessing in disguise for Flipkart
E-commerce firm Snapdeal has terminated talks for a takeover by larger rival Flipkart, saying it will “pursue an independent path” to continue its operations.business Updated: Aug 02, 2017 10:04 IST
Bengaluru Online marketplace Flipkart Ltd may benefit from the decision by smaller rival Snapdeal to cancel its proposed sale, saving itself the distraction of owning a complicated asset that would have added little to its business at a time when the company is already straining to hold off arch-rival Amazon India.
On Monday, Snapdeal (Jasper Infotech Pvt. Ltd) walked away from a potential sale to Flipkart, which had offered to buy the online marketplace for $850 million in stock. Snapdeal’s largest investor SoftBank Group Corp, however, is continuing talks to buy shares worth $1.5 billion in Flipkart, Mint reported on Monday.
The price that Flipkart had offered for Snapdeal was considered too high by investors and analysts given that Snapdeal’s monthly gross sales have dropped to less than Rs350 crore—lower than that of Flipkart’s fashion unit Myntra.
Additionally, India’s e-commerce market has cooled significantly since the start of 2016, indicating that there’s hardly any room for more than two so-called horizontal retailers. Flipkart, which is already trying to absorb eBay India’s business after agreeing to buy it in April, would have struggled to find use for yet another horizontal marketplace in its fight against Amazon India (Amazon Seller Services Pvt. Ltd).
“Flipkart has definitely dodged a bullet with this deal not going through. The Snapdeal integration would’ve been an unnecessary headache. The only reason why they agreed to buy Snapdeal in the first place was because of the SoftBank investment. And those investment discussions are happening anyway. So, if you can get the milk without buying the cow, why would you need to buy the cow at all,” said a partner at a venture capital firm on condition of anonymity.
Mint reported on 17 April that the Flipkart-Snapdeal merger was being done primarily for the benefit of Tiger Global Management, Flipkart’s largest investor, and SoftBank, which is in talks to buy part of Tiger’s stake and invest fresh capital into Flipkart.
From an operational perspective, the Snapdeal buyout made little sense for Flipkart. Snapdeal’s market share has slumped over the past year, and particularly since the start of 2017 when it was forced to cut hundreds of jobs and slash spending on other areas.
Just 11.7% of Indian smartphone users had Snapdeal’s app installed at the end of June, compared with 29.8% for Flipkart and 39.6% for Amazon, according to estimates by research firm KalaGato Pte Ltd.
“The market-share gains Flipkart would have made from this transaction have reduced for every month that the deal has been in negotiation,” said Aman Kumar, chief business officer at KalaGato.
With Snapdeal out of the picture, Flipkart is free to focus on its primary challenge of keeping Amazon India at bay. Flipkart has consistently nudged ahead of rival Amazon India in monthly sales this year though there’s little separating the two companies, Mint reported on 26 July.
The broader e-commerce market continues to grow sluggishly. In the June quarter, shoppers bought goods worth $15.5 billion on an annualised basis, according to RedSeer Management Consulting Pvt. Ltd. That implies growth of just 5% from the March quarter, and an increase of 19% from the year-ago period, RedSeer data shows. This was despite the heavily advertised sales events that Amazon and Flipkart held in May.
(Published in arrangement with livemint.com)