Chinese e-commerce behemoth Alibaba had made a failed attempt to buy out Flipkart during the last quarter of 2016 when unsuccessful efforts at raising fresh funds, multiple markdowns and top-level churn had dampened the sentiment around India’s largest e-commerce company. At least four people in the knowledge of this development told VCCircle that Alibaba sent a serious proposal to buy out Flipkart, which was also battling serious competition from the world’s largest e-commerce company Amazon, but the talks fell through at an early stage.
The individuals cited above said Flipkart spurned Alibaba’s advances as it felt let down by the valuation offered by its Chinese rival. According to these people, Alibaba offered $6 billion to buy out Flipkart, which in its heyday in 2015 had commanded a valuation of more than $15 billion.
VCCircle couldn’t ascertain the exact timing of these talks. However, at that point, co-founder Binny Bansal was still Flipkart's CEO and former Tiger Global executive Kalyan Krishnamurthy was not at the helm yet.
“Alibaba’s conservative approach to valuation was one reason why the talks didn’t progress,” said one the individuals cited above. Around this time, Walmart had also evinced interest in Flipkart and media reports said the world’s largest retailer was exploring an infusion of $750 million to $1 billion in the homegrown e-commerce company at a valuation higher than the one offered by Alibaba.
At $197 billion, Alibaba's market cap at the end of last fiscal was less than half of its gross merchandise volume (GMV) of $463 billion. Being an operator-investor, Alibaba was looking at Flipkart’s valuation through the lens of its own financial metrics, one of the individuals cited above said. He added that given the vastly untapped potential of the Indian e-commerce market in the long term, Alibaba was willing to offer a premium over Flipkart's GMV of around $4 billion.
Flipkart did not respond to email queries sent by VCCircle. Alibaba responded after this article was published, saying: "We have never submitted any investment proposals to Flipkart. The claim about Alibaba Group having made an offer to the company is completely untrue and baseless.”
While nobody would officially confirm Alibaba's stillborn bid to acquire Flipkart, there is no denying that Flipkart was going through a period of heightened uncertainty during the last quarter of 2016. The company’s valuation was hammered down to $5.4-5.6 billion following markdowns by several of its investors, such as Fidelity Rutland Square Trust and Morgan Stanley, which pared down the value of their investment in the company significantly.
Things, however, took a turn for the better once Krishnamurthy took over the reins and the company's sales and cash burn began improving. The fact that Flipkart stole a march over Amazon in Diwali sales also boosted confidence in the company.
By the beginning of 2017, a fresh set of investors appeared on the horizon while Flipkart itself seemed to have a better control over its destiny. After months of speculation, the company announced this week that it was buying rival eBay’s India operations using the $1.4-billion cash infusion from Chinese internet company Tencent, software giant Microsoft and eBay itself. The fresh funding, the largest so far in the Indian Internet sector, valued Flipkart at $11.6 billion, which is lower than its $15.2-billion peak but significantly more than the levels the markdowns pushed it to last year.
People with direct knowledge of developments at Flipkart have told VCCircle that an additional $500-million fresh investment from Japanese telecom and internet company SoftBank is on its way and will come bundled with Snapdeal, the third largest e-commerce company in India.
Industry observers, however, are quick to point that most of the fresh investment into Flipkart has come with conditions. For instance, eBay has offloaded its dormant India operations along with its $500-million investment in Flipkart. Likewise, SoftBank’s proposed bet on Flipkart comes with the baggage of Snapdeal. Microsoft, too, inked a pact before the investment that Flipkart use its cloud platform.
"While the business with Flipkart is just a small part of the deal, Microsoft would be looking to leverage Flipkart's data and insight into customer behaviour, which would be useful for its B2C and social business in India going forward," said one of the persons cited above.
This article has been updated to include Alibaba's response to email queries sent by VCCircle.
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