Softbank finally makes significant investment in Flipkart even as Snapdeal pursues independent path

Softbank investment adds to the .4 billion that Flipkart raised earlier March this year from EBay, Microsoft and Tencent in this round of funding. (Image: Reuters)

It has finally happened. Softbank has invested funds in Flipkart, even as its efforts to merge rival Snapdeal into India’s leading e-commerce players fell through on disagreement over valuations. Flipkart said on Thursday that it has raised “significant” investments in the form of a mix of primary and secondary capital from the Japanese investor Softbank’s Vision Fund, taking its cash reserves to over $4 billion. The Softbank investment adds to the $1.4 billion that Flipkart raised earlier March this year from EBay, Microsoft and Tencent in this round of funding.

“This is the biggest ever private investment in an Indian technology company, and will make the (Softbank) Vision Fund one of the largest shareholders in Flipkart,” the company said in a statement. “We’re excited to welcome the Vision Fund as a long-term partner as we continue to build our business with a focus on serving the needs of all Indians, and driving the next phase of technology adoption in India,” Binny Bansal and Sachin Bansal, Co-Founders of Flipkart, said in the statement.

Softbank, the single-largest investor in Flipkart’s rival Snapdeal, was reportedly eyeing switching its stake in e-commerce major Snapdeal with that in the market leader Flipkart. Softbank had pushed for selling Snapdeal, in which it holds 33% equity stake, to Flipkart for $1 billion, and was believed to be mulling investing a similar amount in the combined entity in return.

Earlier, Softbank Group wrote-off $1 billion on valuation of its stake in Snapdeal, indicating why it was desperate to exit the investment and switch its holding in the struggling Indian e-commerce major with that in other robust firms such as Flipkart and Paytm. Softbank’s write-off on Snapdeal was bigger than its original cumulative investments worth $900 million so far in just over two-and-a-half years.

The rapid decline in Snapdeal’s valuation, with no recovery in sight, seemed 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.

However, Snapdeal walked away from the merger talks with Flipkart saying that it would rather pursue an independent path. Flipkart had made an offer for $1.1 billion in June. Snapdeal management believed that Flipkart should add $150-200 million for subsidiaries Vulcan and Unicommerce to the then valuation of $1.1 billion. In the entire deal, valuation had always been the bone of contention. However, in the revised offer, Flipkart offered just $950 million, which led to Snapdeal snapping the deal.

In today’s statement, Flipkart said that SoftBank has an India portfolio spanning e-commerce, ridesharing, digital payments, hospitality, clean energy and telecommunications, which is valued at over $6 billion. Completion of the investment is subject to customary regulatory approvals and closing conditions Flipkart said. Goldman Sachs & Co. LLC served as financial advisor and Gunderson Dettmer LLP served as legal advisor to Flipkart. Citi served as financial advisor and AZB & Partners served as legal advisor to the SoftBank Vision Fund.

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