FreeCharge sold for $60m, a big drop from the $400m Snapdeal paid for it

FreeCharge founder Kunal Shah, looking pleased as punch after the acquisition by Snapdeal in 2015. Photo credit: Tech in Asia.

Indian ecommerce company Snapdeal, which has accepted a buyout offer of US$900 million to US$950 million from arch rival Flipkart, is selling its digital wallet FreeCharge separately to Axis Bank for US$60 million in an all-cash deal. It is subject to regulatory approval, which is expected to take two months, says a statement from Axis Bank.

The sale of FreeCharge was helmed by Jason Kothari, who had shifted to Snapdeal from another troubled SoftBank-funded company, Housing.

Snapdeal co-founder and CEO Kunal Bahl says this “win-win deal” allows Snapdeal to focus on its ecommerce business. However, it’s expected that the sale of Snapdeal to Flipkart will be the next step, following the board’s approval, barring a last-minute spanner in the works from smaller shareholders feeling peeved at getting the short end of the stick.

Flipkart has its own digital wallet PhonePe, which it acquired last year, so the separate sale of FreeCharge was always on the anvil during the negotiations to buy Snapdeal.

The US$60 million sale of FreeCharge is a big drop from the US$400 million Snapdeal paid in cash and stock to acquire it in 2015 – the biggest acquisition in India until then. The drop in valuation is similar to that of Snapdeal which was valued at over US$6 billion at the start of 2016.

Alibaba-backed Paytm has made rapid gains to become the leader in the payments space. Snapdeal’s biggest investor SoftBank made a solo bet of US$1.4 billion in Paytm three months ago.

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But for Axis Bank, the acquisition of FreeCharge and its user base could give a boost to its digitization efforts, especially in mobile payments and small value transactions. Banks are looking at ways to partner or acquire startups to keep up with the rapidly evolving fintech scene. This is the first acquisition of a digital payments startup by a bank in India.

Fresh start for SoftBank

The sale of FreeCharge was helmed by Jason Kothari, who had shifted to Snapdeal from another troubled SoftBank-funded company, Housing, which was sold off to rival real estate portal PropTiger.

SoftBank has been pushing for the sale of Snapdeal from last year when it lost market share drastically to Amazon. This year the Japanese investor placed a huge bet on Paytm, and it continues to back ride-hailing app Ola and budget accommodation aggregator Oyo Rooms.

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It may also invest in Flipkart as part of the Snapdeal deal. That will give SoftBank a play in the two biggest ecommerce entities facing off against Amazon in India.