Flipkart, Snapdeal merger buzz gets louder

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With rising competition in the e-commerce space in India, domestic rivals Snapdeal and Flipkart may look to merge their operations, sources said.

The e-commerce space in India has three formidable players – Snapdeal, Flipkart, and Amazon. The three e-tailers have been battling it out for the leading market share, dishing out discounts which plunged them into losses in the last fiscal, and even raised a red flag with the government. With the new foreign direct investment norms for e-commerce entities in place, it is now difficult for them to take the discounts path to grab a larger market share.

While Flipkart’s Myntra recently acquired Jabong to have a one up on Amazon, sources say now arch rivals Snapdeal and Flipkart may be looking at a merger option. According to sources, the top management of both the companies have initiated merger talks, a move that would help them beat Amazon in India. As per sources, Snapdeal co-founder Kunal Bahl had met with top executives of Tiger Global Management, the US-based hedge fund giant and the largest investor in Flipkart, presumably to discuss the issue.

Sources said that Amazon has gone past Flipkart in terms of Gross Merchandise Value (GMV). While Amazon India’s GMV was around Rs 2,000 crore, Flipkart’s GMV was around Rs 1,800 crore. Snapdeal, although at the third spot, was far away with its GMV at only Rs 600 crore. The move is also expected to help the combined entity tackle competition from Reliance Retail, which may become a formidable rival after a full rollout of Reliance Jio’s services.

However, Snapdeal denied having any such merger discussions with Flipkart. “These are baseless speculations, we have had no such discussions with anybody at any point in time,” Snapdeal’s spokesperson said in a statement. “This is completely false and baseless,” a Flipkart spokesperson said in response to email queries.

“Ground situation is that Amazon started very late in India after Flipkart and Snapdeal. But Amazon is taking market share of Snapdeal and Flipkart. Snapdeal revenue has gone down and customers have shifted to Amazon. Now, Snapdeal investors don’t want to put more money and are looking for an exit,” said Anand Lunia, venture capitalist and founder of India Quotient. Flipkart, sources said, would benefit from payments-enabler FreeCharge, which is a part of Snapdeal. Snapdeal acquired FreeCharge in a cash-and-stock deal in April last year to expand its mobile commerce business.

Now, Snapdeal is reportedly likely to sell a stake in FreeCharge at a valuation of Rs 8,000 crore to monetise its investment. This deal with Flipkart may just be it.

Then, there are players from outside India who are looking to enter the Indian market. Take Alibaba for instance, which is planning to make an entry into the market. The move will further intensify competition. A merged entity will let it tackle rising competition head on, sources said.

Alibaba has already evinced interest in Snapdeal and Paytm. Sources say there are investors from Japan who are interested in Snapdeal too.

Sources said that investors may be looking for an exit option because of low valuations. They want to consolidate operations before the valuations fall much further, they said.