Online retailer Flipkart has sent a revised buyout offer of roughly $850 million to smaller rival Snapdeal, according to a Mint report. This is about $150 million more than its offer about two weeks ago, which was rejected by Snapdeal’s board.
Is Snapdeal worth that much? Of course not. Its market share has shrunk rapidly and it has all but disappeared from the list of preferred venues for online shopping. Left on its own, Snapdeal will collapse.
What then explains Flipkart’s generous offer? In a word, SoftBank.
If Snapdeal collapses, SoftBank will end up with egg on its face for investing nearly $1 billion in a failed venture. To save face, it is reported to be negotiating a deal with Flipkart and its largest investor, Tiger Global. Flipkart will buy Snapdeal in an all-stock deal, and SoftBank in turn will invest a handsome sum in Flipkart, besides directly buying some stake from Tiger.
The upshot: SoftBank needn’t write off its entire investment in Snapdeal; it will still have skin in the game in India’s online retail opportunity—in fact, now with the largest company in the industry. For Flipkart, the deal will bring in one of the world’s largest funders of internet companies, and also provide an exit for one of its key investors.
Of course, this whole roundabout arrangement looks weird, but then, when it comes to internet companies and their funding, there is hardly anything ordinary about it.
If SoftBank adequately funds Flipkart and helps it stave off the threat from Amazon.com Inc., who knows, all who are involved in the current circuitous transaction will end up with smiles. And perhaps, as speculation goes, SoftBank may well be joined by Alibaba in backing Flipkart—the two are currently common investors in PayTM.
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