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Who's to gain from the potential Paytm-Snapdeal merger?

20-February-2017
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Who's to gain from the potential Paytm-Snapdeal merger?

Paytm’s ecommerce site, Paytm Mall and Snapdeal are exploring a merger option and have held early talks on it.  The merger has been reportedly discussed as an all-stock deal. According to media reports, the deal may not happen now and talks will resume once the consent of all stakeholders has been taken.

The beneficiary

The common factor over here is Alibaba, the Chinese e-commerce giant, which has 40 per cent stake in Paytm and around 3 per cent in Snapdeal, who is supposedly driving the deal. So if the merger takes place, Alibaba will emerge as the new entity’s largest shareholder and will be the biggest beneficiary. It will definitely strengthen its position in India’s e-commerce market place from the onset where it will compete with other top players Amazon and Flipkart. Earlier Alibaba had chosen Paytm as its trusted ally to foray the e-commerce space, which has been a loss making industry till date, with major players such as Snapdeal, Flipkart and Amazon posting a collective loss of Rs 11, 754 crore in 2015-16. The obvious reasons being Paytm having a better grip over the insights of the local market and its record growth of over 1000 per cent in the value of money added to mobile wallets. In fact, according to reports, when One97 separated its e-commerce operations from the mobile payment and commerce business, it hinted at the possibility of Paytm e-commerce getting acquired by Alibaba. Last month, Paytm e-commerce had reported to bring in $200-252 million (Rs 1,350-1,700 crore) in an investment-round led by Alibaba.

The other common player is Japanese internet conglomerate SoftBank, who is the largest investor in Snapdeal and Alibaba. It recently lost nearly $350 million on investments in Snapdeal and Ola.

Emails sent to both Snapdeal and Paytm didn’t elicit any response.

Tough times for Snapdeal

The deal can prove to be a blessing in disguise for Snapdeal, which is going through tough times and putting its cost-cutting strategy in place. As per recent reports it is looking to cut its salary and bonus costs by 60 per cent and putting together some of its major categories like mobiles and electronics under one to save costs. There was also news that the company is laying off 30 percent of its workforce, which includes about 5,000 contract and 3,000 on-roll employees from Snapdeal’s logistics subsidiary Vulcan Express.

Then there also have been talks of Jasper Infotech, its parent company, of planning to sell its payments wallet business Freecharge and is reportedly in talks with other wallet firms Paytm and PayU for the same.

Earlier this month Snapdeal pulled the plug on Shopo, an online marketplace for quirky and handicraft products after a year and a half of operations. It is to be noted that the ecommerce giant has announced that it will be investing $100 million in the handicrafts marketplace over the next two years. The move came at a time when Snapdeal is aggressively looking to raise funds, cut costs and conserve cash. It had earlier also shut down its premium and luxury fashion goods platform, Exclusively.com.

Prior to this, the ecommerce giant had reportedly suspended an incentive programme for customers that it previously employed through affiliates to conserve cash. This affiliate network comprises coupons, deal and cashback channels and blogs.

Snapdeal also saw two exits of long-time employees, Abhishek Kumar, head of M&A and investments, and Sandeep Komaravelly, SVP of Shopo, a C2C marketplace.

Its value has now come down to $3-3.5 billion, down from the last fund-raising round that pegged it’s valuation at $6 billion.

So a merger in this scenario will only help it strengthen its hold over India’s burgeoning e-commerce sector.

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