Paytm pulls out of Snapdeal buyout talks, leaves ball in Flipkart's court

Noida-based Paytm has pulled out of talks to acquire struggling e-commerce firm Snapdeal on valuation issues, highly placed industry sources told Moneycontrol.

According to top sources, Paytm was not keen to consider a valuation of over USD 800 million to USD 1 billion for Snapdeal.

Moneycontrol had earlier reported that besides rival Flipkart, Paytm was also in talks to acquire Snapdeal as both had Alibaba Group as a common investor.

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Snapdeal has raised close to USD 1.76 billion from investors such as Ontario Teachers’ Pension Fund, Softbank, Alibaba Group, Temasek and others. A low valuation would also mean that late stage investors in the company could get a low or negative return on their investments.

This leaves the ball in the court of Flipkart's top investors such as Tiger Global to consider an acquisition of the Softbank-backed company.

Flipkart is also in talks to raise USD 1 billion in funding from investors such as Microsoft, eBay and Tencent. A merger would make eBay as a common investor in both Flipkart and Snapdeal.

Will not grow e-commerce through buyouts: Vijay Shekhar Sharma

Last month, Paytm had unveiled its online shopping portal – Paytm Mall as a new version of its existing e-commerce business.

It was largely expected that the company will acquire Snapdeal to grow its e-commerce business. An integration of Paytm's wallet business with Snapdeal-owned Freecharge was also on the cards which would have resulted in a much larger marketshare for the company.

However, Paytm's founder Vijay Shekhar Sharma told Moneycontrol that it will never acquire a company just to expand its e-commerce business citing integration issues.

"We believe it is better to build vs buy because there are lot integration challenges in the company ...we are a small, nimble company where we believe that the speed of execution happens better if we are building it vs buying," he said. Sharma declined to confirm on talks with Snapdeal.

Moneycontrol had earlier reported that Softbank, the Japanese investor in Snapdeal was leading sale talks with Paytm and Flipkart.

Snapdeal continues to be in conversation with Flipkart. If all goes well, the merger could be announced in May, a person close to developments said.