By Shalini Pandey
Owing to continual losses, the e-commerce firm, Snapdeal, has been in the process of selling its business for quite some time now. Flipkart was the front-runner in this acquisition and even revised its offer to about $850 million – approximately $650-700 million in stocks and the rest in cash. Recently, Infibeam, the only listed Indian e-commerce firm, has shown an interest in the deal.
Weighing the options
Infibeam has made a bid of $700 million in stock which is lower than Flipkart’s offer. However, co-founders Kunal Bahl and Rohit Bansal are more keen on striking a deal with Infibeam, as it would allow them to retain control of the company after the sale. Whereas, they would have to leave if Snapdeal is sold to Flipkart.
On the other hand, Snapdeal’s largest investor, Softbank Group Corporation is pushing for the sale of Snapdeal to Flipkart to cut its losses. However, it can’t force its decisions as it does not possess 75 percent of the voting rights. The co-founders are also considering getting Snapdeal to survive as an independent company by cutting both, a majority of jobs and the size of its business, should the deal with Flipkart or Infibeam not pull through.
What does it mean for Infibeam?
The success of this deal would prove beneficial for the Ahmedabad headquartered company and help it to expand its base thereby, gaining a higher share of the e-commerce market. Infibeam had a little over 5,000 merchants selling on its online platform as of FY16. This figure is insignificant in comparison to that of Flipkart, Amazon India and Snapdeal all of whom boast about having over 100,000 merchants.
Despite its small size, Infibeam commands a market capitalisation of over Rs 7,000 crore (over $1 billion). This is due to investors having bought into its story of having a differentiated business model that focuses on profitability rather than burning piles of cash on customer acquisition and market shares.
If the deal fructifies it will put Infibeam on the same pedestal as Flipkart, Amazon India, Shopclues, and Paytm.
Leaning towards Flipkart
In light of Snapdeal’s cash crunch, it is unlikely that Snapdeal will side with Infibeam, especially since the $150 million cash payout by Flipkart is too tempting to resist. Snapdeal is starved of capital and this has impacted the company’s ability to discount, which has consequently led to an erosion of its user base and sales. The company has also been forced to cut jobs owing to this cash crunch.
More importantly, SoftBank, which owns about a third of Snapdeal and has two board seats, is pushing for a sale to Flipkart. Flipkart, despite the recent 26% markdown in its valuation, is still the most valuable Indian startup and is worth roughly $11 billion. Flipkart then, the only formidable competition to Amazon in India, becomes the only beacon of hope for SoftBank.
Besides, the sale of Snapdeal without SoftBank’s blessing might prove difficult. As things stand today, for any potential suitor, the bright side to buying Snapdeal is a potential investment by SoftBank and not Snapdeal’s business. SoftBank’s rationale behind choosing Flipkart is simple: it does not want to disappear from the Indian startup scene anytime soon, in spite of its failed ventures with Snapdeal and Housing.com.
Future of Freecharge
Amazon India has placed a bid of $70-80 million to acquire Freecharge. Until now, Axis Bank was the top contender at a valuation of $60-65 million. They placed the bid after receiving RBI approval for their e-wallet. Additionally, they have already pumped in around Rs 130 crore to revamp their Amazon pay wallet to compete with rivals Paytm and Mobikwik.
Acquisition of Freecharge will undoubtedly enable Amazon India to launch their wallet services as a separate entity and grab some market share. Snapdeal’s already-low cash reserves have a chance at getting replenished by this much-hyped sale.
Featured Image Source: Flickr
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