India's Snapdeal calls off merger with Flipkart

The decision follows months of speculation and reports that they were nearing a deal as recently as last week. In a statement, Snapdeal said it will focus on building a sustainable business by divesting non-core assets and cutting staff. The company sold digital payments platform FreeCharge, acquired in 2015 for a reported $450 million, to Axis Bank for INR3.85 billion ($60 million) last week. It is said to be in talks to sell logistics unit Vulcan Express.

Negotiations for the Flipkart merger had reportedly been driven by Japanese conglomerate SoftBank Group, one of Snapdeal’s biggest investors, which has marked the company down several times over the last year. In its most recent financial report, SoftBank indicated its total losses in Snapdeal and Indian ride-hailing app Ola came to JPY160 billion ($1.4 billion).

Early stages of negotiations were marked by disputes between investors about the true valuation of Snapdeal, with SoftBank pushing to sell the company for about $1 billion but other investors, including Kalaari Capital, setting the value much higher.

Investors reached agreement on the matter, but opposition from founders Kunal Bahl and Rohit Bansal has reportedly proved too great to overcome. The two were frustrated at the slow pace of negotiations and reluctant to agree to requirements imposed by Flipkart, including non-compete agreements for the founders and other members of management.

The collapse of the sale leaves Snapdeal’s VC backers in a difficult position. In addition to SoftBank and Kalaari, the company's investor roster includes local players Nexus Venture Partners, Bessemer Venture Partners, Premji Invest, and Saama Capital as well as eBay, Intel Capital, Temasek Holdings and BlackRock.

“After reading Snapdeal's statement in the news today, I am extremely disappointed and shocked with the founders’ disregard for investors and employee interests,” Vani Kola, a managing director at Kalaari, who left Snapdeal’s board earlier this year, said in an interview with ET Now. “We were not aware of this decision, it wasn't discussed and did not receive our support. These actions harm the credibility of the nascent startup ecosystem in India."

Snapdeal has been locked in a battle for dominance over India’s e-commerce market with Flipkart, its strongest domestic rival, and US-based Amazon. Flipkart has faced its own difficulties in recent years, with several senior executives departing and the company changing CEOs twice since January 2016. It is now helmed by Kalyan Krishnamurthy, a former managing director at the company’s largest backer Tiger Global Management.

Flipkart also suffered a series of markdowns last year by US-based mutual funds including Fidelity, Morgan Stanley and T. Rowe Price. Earlier this year the company raised $1.4 billion from Microsoft, eBay and China’s Tencent Holdings at a post-deal valuation of $11.6 billion, down from $15 billion as of its previous round. The company also agreed to buy eBay’s India business, which will operate as an independent brand within Flipkart.

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• Topics
• South Asia
• Technology
• Consumer
• Restructuring
• India
• TMT
• Kalaari Capital
• Softbank
• M&A
• Nexus India Capital Advisors
• Bessemer Venture Partners
• Saama Capital
• Intel Capital
• Temasek Holdings
• BlackRock