The Indian e-commerce rollercoaster: Why Snapdeal is snubbing Flipkart for Infibeam

Despite pressure from their largest investor, Softbank, it's looking likely that Snapdeal will be selling out to Infibeam, the only listed Indian e-commerce firm, rather than Flipkart. This despite Snapdeal having received two offers from Flipkart for an all-stake acquisition.

Flipkart's first offer was $550 million (Rs 35 thousand crore), and the second offer, that came in a week later, was around $900 million. Both of these offers were below the e-commerce company's expectation of $1 billion (Rs 64 thousand crore).

Interestingly, Infibeam came in with an offer of their own last week. That offer, of around $700 million (Rs 45 thousand crore) in stock, was below Flipkart's offer, but, interestingly, the company is now the frontrunner in the race to acquire Snapdeal.

Two sides to the deal

On one side, Snapdeal co-founders Rohit Bansal and Kunal Bahl are strongly pushing for a sale to Infibeam Inc. This is because, in simple terms, want the company to survive independently.

On the other hand, Softbank is pushing for a sale to its bigger rival Flipkart. If the company were to be sold to Flipkart, the two co-founders would, in all likelihood, leave the company.

Failing to sell to either Flipkart or Infibeam, Snapdeal would go to plan B. They are proposing to survive as an independent company by cutting the size of their business and going through with another round of layoffs, according to a report in Mint.

This comes just as venture capital firms Kalaari Capital and Nexus Venture are locked in a valuation tangle, and have postponed the merger of Snapdeal and Flipkart that looked like a done deal a couple of weeks ago.

Amazon to acquire Freecharge?

As part of plan B, Infibeam is planning to independently offload Freecharge and not include it as bait in a deal with either Flipkart or Infibeam. Amazon has reportedly placed a bid of $70-80 million for Freecharge. This tops the valuation given by Axis Bank of $60-65 million. Paytm and Bharti Airtel’s mobile wallet Airtel Money are also
interested in acquiring Freecharge.

Successfully selling Freecharge will give Snapdeal the impetus to run for a couple of months, as an independent company, before being forced to sign a deal with one company or the other. If Amazon is successful in its bid for Freecharge, it could very well just roll the payment entity into its very own Amazon Pay. Despite the higher bid, it doesn't seem that Amazon is the frontrunner, according to various reports.

Freecharge had been acquired back in 2015 for $400-450 million by Jasper Infotech, in what was then the largest Indian startup acquisition.

There are two reasons why Amazon is making a last minute play for Freecharge.

First, Amazon has received RBI approval for their E-wallet in India and will be locked in direct competition with market leader Paytm. They've also put $20 million into revamping Amazon Pay wallet. The acquisition of Freecharge will help them fastrack their entry into this space and possibly double their market share in a shorter timeframe.

Second, the pressure for Snapdeal to immediately sell to a rival company will heavily reduce.

Freecharge, according to the Mint report, will be sold by the end of July, meaning we will not have to wait much longer to know the outcome.