Major development

Situation can change

BENGALURU: Flipkart considered selling itself to Amazon , a chorus of voices in the investment community told ET, upending conventional thinking that India’s largest online retailer would go the full distance as an independent Internet giant.In all, half-a-dozen sources told ET of the discussions between Flipkart and Amazon, and emphasised there is no reason to believe that a deal will be struck or that talks are still ongoing between the two.The talks were held until as recently as the last quarter of 2015, one of the sources said. ET was not able to determine the exact timeline of these talks or if they were initiated by one of Flipkart’s investors Flipkart itself denied that it is up for sale, or that it is in the market for capital.Binny Bansal, the chief executive officer of the Bengaluru-based company, said in a statement that Flipkart would raise money only at the right valuation.“All rumours of potential sale and down rounds are false and baseless,” said Bansal, who took over as CEO in January, succeeding cofounder Sachin Bansal, who is now the executive chairman of India’s most valuable startup. “Flipkart continues to be the market leader in India and we are in this business for the long haul.” He did not directly address specific questions about talks with Amazon.Amit Agarwal, the head of Amazon in India, did not reply to emailed questions. A spokeswoman for Tiger Global Management, the largest shareholder in Flipkart, declined to comment. Sachin Bansal and Binny Bansal own about 7% stake each in Flipkart.With or without a deal, the fact of negotiations involving potential sale of Flipkart is a major development for two reasons — it radically alters the narrative about online retail industry in India, and raises questions about willingness and ability of Indian startups to fight and win prolonged battles for market domination.And then there is the context of what is happening in the Indian e-commerce market, where the other major players include Snapdeal (backed by Japan’s SoftBank ) and Paytm (in which Alibaba is the biggest investor).In recent weeks, Flipkart has opened negotiations with Alibaba for a fresh round of funding , and many believe that it presages an alliance with Paytm, including a possible sale of Paytm’s e-commerce business to Flipkart. Paytm CEO Vijay Shekhar Sharma denied any plans to sell any part of his business to Flipkart. Alibaba declined to comment.Flipkart has been in the market to raise $1.4 billion, ET reported in January, as it looks to increase its war chest amid stiff competition and concern about the fundraising environment turning choppy. After about two years in which money was easy to come by and gaining market-share was the main aim, startups big and small have been cutting costs as investors and founders turn their attention to the bottom line.While Flipkart is market leader, Amazon has access to cash from its balance sheet, and founder Jeff Bezos has promised to invest $2 billion in India. Alibaba is an investor in both Paytm and Snapdeal, making India a battleground for two of the world’s largest online retailers.Three of the sources, who are top-level executives in venture capital and private equity firms, said Amazon made a preliminary offer of up to $8 billion to acquire Flipkart, nearly half of its previous stated valuation of $15.2 billion. A mutual fund managed by Morgan Stanley slashed the value of its Flipkart shares by 27% last month to about $11 billion, increasing speculation that new investors will back the company at a lower valuation.Flipkart is aiming to sell goods worth $12 billion in 2015-16. Snapdeal has thrown down the gauntlet to Flipkart by saying it will sell more than Flipkart, no matter how much Flipkart sells.According to a fourth source, a senior venture capital investor, an offer of a little over $5 billion was made for Flipkart’s commerce business while some $3 billion was pegged for its logistics business. As reported by ET earlier, Flipkart is looking to spin off its logistics business as an independent unit catering to merchants for both online and offline sales.Flipkart-Amazon talks went cold after the offer was perceived to be too low, but the sources said the situation can change given Alibaba’s interest in Flipkart. “If Alibaba takes a stake in Flipkart, and decides to merge all three companies (Flipkart, Paytm and Snapdeal) that may put Amazon in a tough spot,” said a top venture capitalist, indicating that a formal offer by Alibaba may bring Amazon back to the negotiating table.India’s online retailing market, which Goldman Sachs projects will expand to $69 billion in 2020 from $23 billion in 2016, has become the biggest playground for world’s largest -ecommerce companies.Alibaba, with its affiliate payments company Alipay, has already built a significant toehold in Indian e-tailing with around 40% in Paytm and little under 5% in Snapdeal. Japan’s SoftBank Corp, one of the early investors in Alibaba, holds over 30% in Snapdeal. While it faces several challenges, Flipkart is unlikely to agree to a lower valuation while it remains market leader.The online retailer could have money to last 18 months, according to sources. Besides, Flipkart survived a tough fundraising climate in 2012-13, giving it experience of having come through adversity. But the markdown of Flipkart’s valuation means the prospect of an initial public offering recedes further, delaying exit timeline for its investors. But consolidation would not be that easy, and some feel it’s still some time away.“Consolidation among large horizontal commerce players to increase market share within that segment will only happen after they have exhausted all options and investors have concluded there is simply no way to win the battle they are currently raging. We are far from that point,” said Kartik Hosanagar, a professor at The Wharton School, who specialises in technology and digital businesses.