Flipkart offers $950m to buy up rival Snapdeal

INDIAN e-commerce startup Flipkart Online Services Pvt. has extended a bid to buy up its rival, Snapdeal, for an estimated U$950 million. This could be the key to closing a deal between the two companies who have been in drawn-out talks over a potential acquisition.

According to Reuters, two sources close to the talks said the deal was being closely discussed by board members. Flipkart’s previous bid was between US$800 million and US$850 million, but was roundly dismissed by Snapdeal’s board because of the payment terms and offer value.

However, the new deal could prove to be too good to pass up, with the sources noting the true value could fall anywhere between US$900 million and US$950 million, depending on the state of Snapdeal’s balance books.

The two companies have been dancing around the issue of a buy-out for months now, as the e-commerce competition in the country heats up. Both Flipkart and Snapdeal are fending off encroachments by Amazon Inc. into their territory, where it is becoming increasingly recognized and used in the US$5 billion online market.

Flipkart has offered for Snapdeal before, but their initial bid was rejected because of payment issues and the size of the offer. Source: Reuters

The two companies have had their major investors discussing the potential benefits of teaming up, with Softbank Group Co. (a Snapdeal backer) and Tiger Global Management (a Flipkart investor) being vocal about their support for the merger.

Despite the lengthy talks, however, the two parties have yet to reach an agreement. Some sources told Bloomberg the companies have yet to resolve the central issue: Snapdeal worries the value of the company will deteriorate as a result of the acquisition. The company suggests it could see the company lose 85 percent of its value, translating to US$7 billion.

SEE ALSO: Flipkart prepares to pounce on Snapdeal after $1.4 billion funding round

However, Snapdeal and Softbank have agreed to devaluate the former to US$1 billion, and Snapdeal still has to get its house in order. Most of the disputes to a Flipkart merger come from within the Snapdeal board, where investors are agitated regarding the fate of the special payments previously set aside for their early investors and two founders.

It’s unclear when exactly board members will announce the future of the two startups, but a final deal could still be months away.