Snapdeal-Flipkart deal talks called off: Snapdeal 2.0 is too long and painful a journey for staff, investors

Leading e-tailer Snapdeal on Monday said it was terminating strategic discussions to sell its stake, ostensibly to rival Flipkart, as it had decided to pursue an independent path.

"As we have been exploring strategic options over the months, we have decided to pursue an independent path and terminate all strategic discussions, said a Snapdeal spokesperson in a statement, without referring to Flipkart.

A company official, who did not want to be identified, however told IANS that the formal negotiations scheduled between the two e-tailers on Monday here were called off at short notice.

Though Flipkart declined to confirm that its meeting with Snapdeal was cancelled, the latter's official admitted that their representatives could not meet to take the abandoned 'deal' forward.

Reuters

Reuters

After Flipkart offered to buy out the Gurgaon-based Snapdeal at its revised $900-950 million price, the latter's board decided to seek the consent of its investors, including Ratan Tata and Premji Invest of Wipro czar Azim Premji for exiting the e-tail business.

Other strategic and institutional investors in Snapdeal are Ontario Teachers' Pension Plan, Foxconn, Temasek and BlackRock.

Snapdeal 2.0

Snapdeal co-founder and Chief Executive Kunal Bahl is, meanwhile, putting up a brave face insisting on growth ahead, though the future remains uncertain for its staff and other stakeholders.

"We have a compelling direction (Snapdeal 2.0) to create life-changing experiences for millions of buyers and sellers across the country," said the Snapdeal statement.

"With the sale of certain non-core assets, we expect to be financially self-sustainable. We look forward to the support of our community, including employees, sellers, buyers and other stakeholders in helping us create a designed-for-India commerce platform," added the spokesperson.

The company recently sold Freecharge, the mobile payments company it had bought in 2015 for around Rs 2,500 crore for Rs 385 crore to Axis Bank. There was speculation that the move would finally pave way for a deal between Snapdeal and Flipkart.

Later, in an e-mail to his 1,200 odd employees, Snapdeal co-founder and Chief Executive Kunal Bahl said a lot of time and effort went into the process, leading to speculation and uncertainty for the team, partners and investors.

"We will continue the journey as an independent company. The opportunity of e-commerce in India is immense and the surface of the $200-billion market has barely been scratched yet," he said.

Affirming that the company had all the ingredients of success, the CEO said it was time for all to focus on the business and leverage its strength to build the best marketplace to connect buyers to sellers across the country.

On calling off talks with Flipkart, Bahl said the deal was complex to execute as reported by the media.

"First of all, there isn't going to be one successful model for e-commerce in India. In every market, there are multiple successful e-commerce businesses, and as long as one's strategy is differentia ted and has a clear path to success, there is a great company that can be built," he noted.

Elaborating on Snapdeal 2.0 (version), he said the new direction would enable anyone to set up a store online and focus on providing a wide range of products at great prices to consumers.

"We made progress on this new path over the months and are profitable to make upwards of Rs 150 crore in gross profit in the next 12 months," he claimed.

Following streamlining of costs and sale of some assets like FreeCharge, Bahl said the company was financially self-sufficient and did not need to raise additional capital to reach profitability.

"Needless to say, we need to keep a tight control on our costs and work towards becoming an efficient culture, delivering profitable growth, month on month," averred Bahl.

With many team members reiterating that the company should continue in its independent capacity, Bahl said the decision was made and there was no ambiguity about it.

Uncertainty for all

The decision to call off the talks seems to have taken the sector observers by surprise.

Snapdeal has seen its fortunes dwindling in the face of stiff competition from Amazon and Flipkart. It is in this context that a sellout of the company was proposed. The deal has been in the works for long.

“I believe what happened today was not in the best interests of a majority of stakeholders,” The Ken cites venture capitalist Vani Kola of Kalaari Capital as telling a TV channel.

According to a report by news agency ANI, the company is laying off 80 percent of its staff. A senior official of the company has said that with the money from the sale of Freecharge, the company has decided to sack around 1,000 employees out of their present workforce of 1,200, and carry forward with the remaining. It has to be remembered that the company had about 9,000 staff in July last year.

However, as a detailed analysis (paywall) in The Ken says, it remains to be seen what the company can do with the remaining staff in a sector that is reeling under fierce competition from a global giant with deep pockets and a much bigger domestic rival.

Not many analysts share the optimism of Bahl. "They will to have to raise money from existing investors. It is not going to be easy and in the wake of stiff competition from Flipkart and Amazon. Snapdeal will have no chance to go it alone,” an analyst told Firstpost on Monday.

Clearly, Snapdeal 2.0 seems to be a long and painful journey for the staff and investors. One can only hope it will come out of the woods.

(With inputs from IANS)


Published Date: Aug 01, 2017 09:04 am | Updated Date: Aug 01, 2017 09:14 am


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