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With a dead end on the Flipkart deal, Snapdeal is treading its own path

With a dead end on the Flipkart deal, Snapdeal is treading its own path

By Devangi Narang

Ending nearly seven months of intense discussions, Jasper Infotech has terminated negotiations for the proposed sale of its troubled online market place Snapdeal to market leader Flipkart.  In a short statement, Snapdeal said that the company was terminating all strategic discussions and would now pursue an “independent path”. Flipkart also said in a statement that “we respect the decision”, putting the curtain down on a deal that was expected to result in the largest buyout in India’s high-profile start-up sector.  

Why was the deal called off?

The boat sank for the Snapdeal-Flipkart deal after it faced opposition from Snapdeal co-founders Kunal Bahl and Rohit Bansal who had initially agreed to the transaction. They now want to continue the journey as an independent company and affirmed that it has all the ingredients of success. According to a Snapdeal statement, “the company is steering in a compelling direction to create life-changing experiences for millions of buyers and sellers across the country through its new platform Snapdeal 2.0.” Elaborating on Snapdeal 2.0, Mr Bahl said the new direction would enable anyone to set up a store online and focus on providing a wide range of products at great prices to consumers.

Another reason for the call off was that there were “too many contradictions” in the deal including the indemnity clause which Flipkart wanted the board to sign. The indemnity clause had asked all the shareholders of Snapdeal to remain liable for any issues cropping up at the company even 18-24 months after the deal.

Mr Bahl also said that the deal was complex to execute. Moreover, the valuation was always a sticky issue as the founders, early stage investors and smaller shareholders found the markdown of Snapdeal from $6.5 billion to a billion dollars to be unacceptable. 

Many analysts also believe that one of the reasons for Bahl and Bansal to back out could be that Flipkart’s acquisitions over the last three years have not yielded any senior management roles for the executives of these firms after being acquired. This could have been a cause of concern for the co-founders in the future.

What happens next for Snapdeal?

In an effort to go solo on its new business plan strategy Snapdeal 2.0, the company is likely to go for an IPO in the next three years. Moreover, it is going to be a rough ride for Bahl and Bansal from here as it would involve running a tight ship with rigid control on costs to deliver profits in the next 12 months.

Some industry experts also fear an almost an 80 percent cut-down in the workforce to reduce costs. While company insiders said that the total head count could be brought down from 1,200 to 700, some anticipate that the company would decide to sack around 1,000 employees out of their present workforce of 1,200. It has to be recognised that the company had about 9,000 staff in July last year. Furthermore, there are rumours of likely talks with e-commerce giant Rakuten as well.

Featured Image Source: Visual Hunt

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