The failure of Flipkart in acquiring Snapdeal is likely to dent the country's largest e-commerce platform's plans to overtake global rival Amazon.
By culling its workforce and focusing solely on business verticals that yield high margins, it is possible that Snapdeal could survive as an independent entity. And competition, especially in categories that can earn money, will put pressure on Flipkart to burn more cash.
“If Snapdeal survives as an independent entity, they are going to be a competition. Flipkart wants to fight Amazon, not get stuck in a fight with Snapdeal. Even if Snapdeal doesn’t do well, it will be a distraction,” Manish Maheshwari, former head of Flipkart’s marketplace business, says.
While calling off the deal could be a message from Snapdeal’s co-founders and investors that they wanted to push for better terms, Flipkart’s only rationale to look at its smaller rival was to wipe out competition.
SoftBank, which pushed for the merger, was to ensure that Flipkart continued to maintain a strong position in India’s e-commerce space. “This merger was not driven by any business rationale, and was only a play between shareholders to be in the best position,” Haresh Chawla, partner at True North, says.
SoftBank is now likely to independently pursue the nearly $2-billion investment plan in Flipkart, which will give it a double-digit stake in it. SoftBank is likely to take a partial stake held by Tiger Global.
Since it brought Kalyan Krishnamurthy into Flipkart last year, Tiger has rationalised costs, brought in efficiency and put the company on the path towards a public offering. At the same time, Tiger had given its assent to the deal with Snapdeal that brought no business value to the company.
However, it had laid down conditions to ensure that if liabilities were to crop up after due diligence, the Snapdeal co-founders were to be held accountable. “If the merger doesn’t happen, what option does Snapdeal have other than turning their business profitable? But that seems like a tall order. The $60 million that they got from FreeCharge sale will give them a few months of runaway,” Maheshwari says. “Otherwise, they will run out of cash and there will be an even bigger fire sale.”