SoftBank Pushing For Snapdeal Flipkart Merger A Wise Move?

Today, we present the two giant online retailers. While we have Flipkart on one hand, on the other we have Snapdeal.  Both of them experienced a loss in the last financial year. All the online retailers had a negative impact due to the cash crunch situation after the demonetization took place. But, in spite of all the losses, Flipkart still continues to maintain its position somehow. However, it seems that Snapdeal is more prone to vulnerability due to increasing competitions.

• More to Know About Snapdeal And SoftBank:

SoftBank is a Japanese firm which is the largest investor of Snapdeal. It has approximately 30 per cent stake. Snapdeal came into existence in the year 2010. It had a value of $6.5 billion last year. After this, the valuation of the online retailers kept on softening. This Japanese firm is the one responsible for pushing its merger with Flipkart. SoftBank is also looking forward to invest $1.5 billion in the merged entity. This $1.5 billion will cover an approximate stake of 15 per cent.

Now the question is: “Why is SoftBank Pushing this merger?”

According to the situation, SoftBank has three options right now, which it has already explored.

• It can merge Snapdeal with Flipkart.
• A combination with Paytm, which is led by Alibaba.
• It can do SoftBank’s write-down investment to zero.

• Merger Deal With Flipkart:

The merger talks are in the news since February of this year. This deal is likely to take the form of a definitive transaction by the end of April 2017. Tiger Global is the largest investor of Flipkart and is a 30 percent stake owner of Flipkart. It is likely to sell its 20 percent stake. This will lead to the sale of around $1 billion shares. This will be combined with an infusion of SoftBank’s fresh equity. It is also said that Flipkart is seeking towards the merger with eBay.

• Struggles Related to Snapdeal:

Flipkart is the biggest rival of Snapdeal. As the competition between different online retailers increased, its struggle intensified. It was all due to the fierce competition from Amazon and Flipkart. Even the founders of Snapdeal are foregoing salaries in order to cut costs so that a profit can be achieved. A time also came when it had to lay off 600 employees. The investors are not at all happy with this struggling retailer and are looking forward to sell their stakes. Even after all these news, Snapdeal has denied about all its intentions to sell the company.