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Flipkart's Snapdeal buy a few million dollars away

Board approves revised takeover offer of $900-950 million; Co may hold on to Unicorn tag

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What a difference a year can make. Last time it raised money in 2016 from SoftBank, Snapdeal was valued at $7 billion.

Cut to present. It is bargaining hard for a few million dollars to touch the $1 billion figure for sale to Flipkart.

A Reuters report on Wednesday quoted sources saying that the Snapdeal Board has accepted Flipkart's revised takeover offer of $900 million-$950 million, and an approval from Snapdeal shareholders is awaited.

Industry experts said the deal will happen closer to a billion dollar figure because it's a very psychologically egoistic type of a number.

However, the more crucial part is how much cash will SoftBank infuse into Flipkart. That's the only point of discussion as it was never about how much will Flipkart pay for Snapdeal's acquisition/merger, said experts.

According to K Vaitheeswaran, e-commerce pioneer and author of just-released book Failing to Succeed - The story of India's first e-commerce company, everyone is talking about the wrong number. "The issue is not about how much Flipkart will pay for Snapdeal. What's important here is, at what amount of share transfer (valuation) will SoftBank agree to put cash into Flipkart. That's the most important aspect to look for I'd say. That's because Flipkart wants cash from SoftBank so they are obviously willing to give up some paper shares to Snapdeal (to acquire/merge the company). I think, that's the key number," said Vaitheeswaran.

So what does this deal do to the industry in general once it concludes in the days/weeks ahead? Nothing, say experts.

"Because Snapdeal was anyway going down. There was hardly anybody buying/transacting on Snapdeal, so it's not as if those customers will move to Flipkart. It's the same customer, so nothing will change. One less player to think about is the only thing that changes for the e-commerce industry post this deal," said an expert requesting not to be quoted.

A deal like this happens if you are getting a strong brand, acquiring more customers/sellers, getting better employees, technology, higher sales, etc, the expert said. In this case Flipkart is already stronger in all the aspects that the Snapdeal acquisition/merger brings to the table.

"In fact, Flipkart already has so many employees, why would it take on more employees. There is no value or asset that Flipkart gets in this deal," an expert asked.

"In my view, it will change nothing because there is no asset getting transferred from Snapdeal to Flipkart. So the dynamics of the industry remain unchanged and there will be no impact on the way the industry is currently performing," said Vaitheeswaran.

Snapdeal was ranked as a big Unicorn seeking around $7 billion in valuation a little over a year ago. Experts said at the very least it will be sold in a unit of billion and not billions. "I think somehow they will drag it to the billion figure just to make everybody happy. I am not surprised on this consolidation just that it's taking time to materialise. And the delay is because one part (Flipkart) is not interested but is forced to do the deal. If you ask Flipkart, it'll say they won't pay anything for this transaction because there is no value and that's the case with this deal. They are getting nothing meaningful, hence there is no excitement from their side," said another expert.

...& ANALYSIS

  • Experts said the deal will happen closer to $1 billion as it’s a very psychologically egoistic type of a number
     
  • The crucial part is how much cash will SoftBank infuse into Flipkart, not how much Flipkart will pay
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