India-based e-commerce firm Flipkart has signed a non-binding term sheet to acquire rival Snapdeal in a transaction that will involve many of the latter’s investors making a loss, the Economic Times reported yesterday.
Founded in 2010, Snapdeal owns and operates a diversified e-commerce marketplace that spans some 60 million products, but it has faced long-standing difficulties in generating a profit, largely due to fierce competition from Flipkart and US-based Amazon.
Snapdeal has raised about $1.7bn in funding from investors including telecommunications group SoftBank, which owns about 33% of the company, e-commerce firms eBay and Alibaba, contract manufacturer Foxconn, semiconductor producer Intel and mobile software provider Myriad.
The deal is estimated to be between $950m and $1bn in size, a considerable drop from the $6.5bn to $7bn valuation at which Snapdeal raised $200m from BCC, the media group also known as Times Group, as well as Ontario Teachers’ Pension Plan, Iron Pillar and Brother Fortune Apparel in February 2016.
SoftBank, which holds two of Snapdeal’s even board seats, is said to be very much in favour of a Flipkart purchase, particularly in the form of an all-share transaction, as the deal would contribute to its continuing drive to be the prominent investor in India’s e-commerce and online services space.
SoftBank has already bought out the stakes in Snapdeal held by another investor that holds a board seat, venture capital firm Kalaari Capital, as well as the company’s two founders, CNBC-TV18 reported today.
The other board members have agreed to the sale but Snapdeal’s other backers do not appear to have been consulted. Azim Premji, head of investment fund and Snapdeal shareholder Premji Invest, has written to the board seeking clarification on the situation, according to ET.