SoftBank pushes for merger of India’s Snapdeal and Flipkart

By Kiran Stacey for Financial Times
Tie-up of ecommerce groups would counter growing threat from Amazon in the country

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Japan’s SoftBank is attempting to engineer a merger of Snapdeal and Flipkart, India’s two biggest homegrown ecommerce groups, in an attempt to take on Amazon, which has pledged to spend $5bn to become the country’s dominant internet retailer.  Sample the FT’s top stories for a week You select the topic, we deliver the news. Select topic Enter email addressInvalid email Sign up By signing up you confirm that you have read and agree to the terms and conditions, cookie policy and privacy policy.

SoftBank, which owns a 35 per cent stake in Jasper Infotech, Snapdeal’s parent company, is in advanced talks with investors in Flipkart, its chief domestic rival, to sell Snapdeal for about $1bn, said two people familiar with the discussions. While the Indian ecommerce market is forecast to grow sharply, Snapdeal, Flipkart and Amazon India have recorded losses as they invest heavily on marketing and logistics in an effort to gain scale. In the year to March 2016, the latest period for which regulatory filings are available, Flipkart, Snapdeal and Amazon India made an aggregate net loss of Rs93.8bn ($1.4bn).

Those pressures have hit valuations in India’s ecommerce sector. In early 2016, Snapdeal raised money at a valuation of $6.5bn, while Flipkart commanded a valuation of $15bn in August 2015. Despite the hopes of Softbank’s billionaire founder Masayoshi Son to replicate his remarkably lucrative investment in China’s Alibaba, its investments in India have not always gone well.

In February, SoftBank disclosed a valuation loss of ¥39.3bn ($353m) for its investments in Snapdeal and Ola, the Indian car-hailing company. “SoftBank is keen to merge the two companies, but some of the minority shareholders are not happy with the valuation that is being talked about,” one of the people close to the negotiations said. The talks underscore SoftBank’s increasingly active role in every corner of the technology industry, from ecommerce and gaming to chip design and satellites.

In India alone, the company has committed to spending up to $10bn in technology companies over the next decade.  The Japanese company has been in talks with multiple parties including US investment group Tiger Global Management, the biggest investor in Flipkart, in an effort to secure a deal, people familiar with the discussions said. One drag on the talks has been how to win over Snapdeal’s founders and early investors. Jasper Infotech’s minority shareholders, led by Nexus Venture Partners and Kalaari Capital, the two venture capital funds that own 10 per cent and 8 per cent of the company, respectively, are holding out for more money, they added.

Snapdeal’s founders, Kunal Bahl and Rohit Bansal, who will make millions if they sell their own joint 6.5 per cent stake, sent an email to staff on Sunday saying that “our investors are driving discussions around the way forward” without going into detail. They added that their highest priority was to protect the company’s staff. Snapdeal, Flipkart and SoftBank declined to comment.