Amazon and SoftBank are going to clash head-on in India’s online retail industry as the latter pushes through with the Flipkart-Snapdeal merger to create India’s largest online retailing entity.
Reports in the local media in India reveal that SoftBank Group Corp.’s Masayoshi Son is pushing forward immensely to close the deal with Flipkart and to ensure that the deal does go through, Son is willing to cut Snapdeal’s valuation 85 percent to $1 billion. This is a steep cut in valuation, but Son believes that the deal is necessary as venture funding dries up and competition intensifies.
Talks are now in the final stages and a deal could be signed within weeks, they said, though it’s also possible they could fall apart. Snapdeal co-founder and Chief Executive Officer Kunal Bahl raised the possibility of an acquisition in an email to employees over the weekend, explaining he and co-founder Rohit Bansal are seeking to protect employees.
The co-founders have stated in an email to employees that their only priority is to ensure job security of the employees of Snapdeal. While there is no official confirmation from Snapdeal or Flipkart about a merger, reports claim that the email from the co-founders was to appease employees before they announce the deal.
The combination of India’s two leading e-commerce players is being called an arranged marriage, said people with the matter, with Son playing the role of matchmaker. The Japanese billionaire, who owns about a third of Snapdeal parent Jasper Infotech Pvt, plans to contribute that equity to the merged entity and to infuse another $500 million to $1 billion in Flipkart through a transaction with Flipkart backer Tiger Global Management, the people said.
That would give Flipkart more firepower to battle Amazon in one of the world’s fastest growing online retail markets. The Seattle-based company has vowed to spend $5 billion in the country and India chief Amit Agarwal has used the money to gain customers. Son financed a similar battle in China — and won billions. He was one of the earliest backers of Alibaba Group Holding Ltd., the e-commerce player that first defeated eBay in China and then successfully fended off Amazon. That investment remains one of his most successful to date, giving him stock worth more than $80 billion.
Flipkart is already raising cash for the battle. The Bangalore-based company is said to have recently struck a deal for $1 billion in funding from investors including Tencent Holdings, Microsoft Corp and EBay Inc. An alliance among Flipkart, Snapdeal and EBay would give the business customers, scale and technology, though it’s not clear how easily those could be integrated. “We will do all that we can, and more, in working with our investors to ensure that there is no disruption in employment and there are positive professional as well as financial outcomes for the team as the way forward becomes clear,” Bahl said in the email.