Moving one step closer to e-commerce major Snapdeal’s sale to the market leader Flipkart, Japan’s Softbank will buy out Kalaari Capital’s 8% stake in Snapdeal in an all-cash deal, CNBC TV18 reported. Earlier today, media reported that in a widely expected move, Vani Kola, MD of Bengaluru-based Kalaari Capital has resigned from the board of Snapdeal. Last week, investor Nexus Ventures had reportedly agreed to take a $80 million payout in return for its equity holding in Snapdeal, clearing a major hurdle for Softbank to sell Snapdeal in favour of buying into Flipkart.
Softbank has been pushing hard for Snapdeal’s sale to Flipkart, in a desperate effort to switch its holding in the struggling e-commerce major with that in other robust firms. Softbank’s investment value in Snapdeal has steadily fallen over the last one year, after it invested $627 million in the Indian firm at a value of $1.8 billion in October 2014.
Snapdeal, in which Japan’s Softbank is the single largest investor, has seen its valuation plummet from the peak of $6.5 billion as recently as one year ago in February 2016. Softbank is reportedly seeking a valuation of just $1 billion for selling Snapdeal now. This leaves Softbank with just about $333 million on its one-third equity stake held in Snapdeal. Earlier too, the Japanese conglomerate had recorded losses on its investments in Snapdeal in February this year and in November last year.
The rapid decline in Snapdeal’s valuation, with no recovery in sight, seems to have prompted Softbank to cut its losses and exit the investment while there is still time, in favour of buying into a larger player in the industry with a stronger foothold, and perhaps, better growth prospects in an increasingly competitive market.
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Kalaari Capital, which had invested about $27.5 million in Snapdeal for a stake of around 8%, was one of the early investors in the company and is reported to have held powerful voting rights under its shareholders’ agreement. Apart from Kalaari Capital, which held one board seat, the seven-member Snapdeal board comprises SoftBank, which holds two seats, founders Kunal Bahl and Rohit Bansal – who have a seat each — Nexus Venture Partners, which has one seat and Akhil Gupta, vice-chairman of Bharti Enterprises as an independent director.
In April, Flipkart pulled a coup by buying Indian business of the EBay Inc, as part of an exercise to raise $1.4 billion — its single-largest to date — from a consortium of Tencent, Microsoft and EBay. The deal valued Flipkart at a whopping $11.6 billion. Further, acquisition of EBay is expected to bolster Flipkart’s strength not only in the home market but also give it a toehold in overseas markets with access to a global inventory.
Flipkart seems to be building a war chest to compete better with fast-growing rivals, especially the global giant Amazon, which is fast catching up to beat it in its home market. Amazon, on its part, has committed $5 billion investment into India, indicating its bullishness on the market.
In yet another recent development, Softbank was reported to be interested in one more technology company — India’s leading mobile wallet and payments company Paytm — with a proposed investment of $1 billion. The deal, if successful, would raise Paytm’s valuation at over $7 billion from $5 billion last year. Notably, Chinese e-commerce giant Alibaba, in which Softbank is an investor, also recently picked up a significant equity stake in the newly-formed marketplace business of Paytm.
With Flipkart and Paytm gaining momentum, and Snapdeal struggling all the way, it’s no surprise that Softbank wants to jump ship.