July 6, 2017 / 7:57 AM / in 4 months

SoftBank's stalled Indian sale defies logic

MUMBAI (Reuters Breakingviews) - It is hard to let go of a unicorn. Indian e-commerce firm Snapdeal has rejected a roughly $850 million takeover offer from its larger rival Flipkart, a person familiar with the situation told Breakingviews. A sale at this price would fall short of the startup industry’s magical $1 billion-plus mark, let alone the peak valuation of $6.5 billion Snapdeal hit more than a year ago. But the rebuff is probably a mistake: buyers are scarce and a delay is only likely to lead to a lower price.

An employee cleans a Snapdeal logo at its headquarters in Gurugram on the outskirts of New Delhi, India, April 3, 2017. Picture taken April 3. REUTERS/Adnan Abidi

Japan’s SoftBank is the largest shareholder and has been pushing for a quick sale. But it needs the support of other investors including Snapdeal’s founders, as it does not control the board of the country’s number three e-commerce player. A sale will hurt in the short-run given the technology conglomerate has spent around $1 billion on Snapdeal at valuations up to an estimated $5 billion. However, Reuters reports that founder Masayoshi Son wants to invest a further $1 billion to become a top shareholder in the enlarged entity.

Throwing good money after bad has some logic for the Japanese. The merged group could later be combined with the retail unit of Paytm, another industry player that is backed by Alibaba, the Chinese giant already part-owned by SoftBank. If the end result is a profitable, dominant outfit, that would also help to preserve SoftBank’s boasting rights. Leaving aside Alibaba, the Japanese company claims to have earned a 43 percent cumulative return over the past 18 years on internet investments worth $7 billion. At this point, Snapdeal looks like a blot on that record.

With Amazon the only other significant player in the industry, Snapdeal has a poor negotiating position. Flipkart already counts powerhouses like China’s Tencent, U.S. marketplace eBay, and Microsoft among its investors. Holdouts may be disappointed with the valuation on the table, and possibly other terms and conditions. But one thing is almost certain: the longer this sale drags out the less Snapdeal will look like a unicorn.

Breakingviews

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