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By some measures, Flipkart may still be India’s top ecommerce platform. But its grip on that title is tenuous at best, given that Amazon has moved aggressively into the country, pledging to spend a total of $5 billion on its operations there.
Flipkart’s clearly feeling the heat, as evidenced by ongoing negotiations started in April for the company to purchase homegrown rival Snapdeal. This week came news that Flipkart had increased its offer on a beleaguered Snapdeal to somewhere between $900 million and $950 million, according to Reuters. That was an increase from its offer of $800 million to $850 million made earlier this month, the wire service reported.
(Local media in India have reported that Flipkart has made a second, revised bid for Snapdeal valued at closer to $850 million, up from between $500 million and $600 million.)
Once a market leader in India’s ecommerce sector, Snapdeal has seen its fortunes wither as the company’s gross merchandise value (GMV)—a measure of the total value of goods sold over a period of time—has fallen by a significant margin over the past year. So why is Flipkart even entertaining the notion of an acquisition?
According to Indian business newspaper Mint, part of the push for the purchase is being motivated by Japan-based telecom SoftBank, Snapdeal’s lead investor, and US-based hedge fund Tiger Global Management, which has invested heavily in Flipkart, to minimize their potential losses in the face of strong competition from Amazon. The move would also bring SoftBank into the Flipkart fold, making it one of the company’s investors.
According to projections from Bank of America Merrill Lynch, Flipkart will generate 43% of retail ecommerce sales in India this year as measured by GMV, while Amazon will make up 31%. However, when combined, Flipkart and Snapdeal’s share of ecommerce sales would jump to 54%.
An acquisition of Snapdeal by Flipkart would theoretically give the latter more firepower to take on Amazon’s aggressive moves. The purchase would bolster Flipkart’s supply chain and widen its pool of digital buyers, a group that is growing dramatically in size in India. eMarketer estimates the country’s digital buyers will number 180.1 million this year, and that their ranks will grow to 367.4 million by 2021.
But the purchase of Snapdeal could also introduce a number of headaches for Flipkart, related to integrating the two companies’ operations while facing substantial overlap in markets served and customer bases. And, perhaps most importantly, it’s not clear what benefit—if any—Snapdeal and Flipkart customers might see from an acquisition.
Flipkart may still be able to draw on its growing pool of deep-pocketed investors to give Amazon some real competition. In April the company drew Tencent, owner of China’s popular messaging platform WeChat, as a lead investor in a funding round that drew $1.4 billion.
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