MUMBAI (Reuters) - The board of Indian e-commerce firm Snapdeal has agreed to a deal with bigger rival Flipkart for up to $950 million, two sources said on Wednesday, bringing the two a step closer to forming a combine to challenge Amazon.com's (AMZN.O) domestic growth.
The board of Jasper Infotech, which runs Snapdeal, approved Flipkart's (IPO-FLPK.N) bid of $900 million-$950 million last week, the sources who were familiar with the matter said, asking not to be named as the talks are private.
Two other sources said, however, that obstacles still remain and that the deal will need approval from smaller shareholders of Snapdeal before it gets finalized.
The shares-swap deal would help SoftBank Group (9984.T), Snapdeal's biggest investor, gain a stake in Flipkart, the leading homegrown player, at a time when Indian e-commerce is booming.
Helped by a spurt in availability of cheap phones and data plans, more and more Indians are shopping on the web. A 2016 report from accounting firm EY said that e-commerce had grown at a compound annual growth rate of over 50 percent in the last five years in India and the pace of growth is expected to continue, with e-commerce sales topping $35 billion by 2020.
The rapid growth has been accompanied by severe competition and a fierce war for supremacy between Flipkart and U.S. online retail giant Amazon, which has committed to investing $5 billion in the country.
The acquisition of Snapdeal means one less rival for Flipkart, said Harminder Sahni the founder of Wazir Advisors, a boutique consultancy firm.
"Flipkart may have a plan to run Snapdeal as a differently positioned business just like they run Myntra and Jabong," he said. Myntra and Jabong are Flipkart's fashion portals.
Flipkart has bid for Snapdeal's marketplace business and its e-commerce solutions unit Unicommerce.
Snapdeal declined to comment, while Flipkart was not immediately available for comment.
The Jasper board also considered a $700 million share-swap offer by listed e-commerce firm Infibeam (INFC.NS) but rejected it as too low, one of the sources said.
Infibeam declined to comment.
The two initial sources also said Indian lender Axis Bank (AXBK.NS) is the frontrunner in the race to acquire Snapdeal's digital payments unit FreeCharge and that it has bid roughly $60 million for the asset.
Axis did not immediately respond to a request for comment.
The sources said Snapdeal's founders Kunal Bahl and Rohit Bansal still have reservations about an acquisition by Flipkart however, and are mulling an alternate path.
Bahl and Bansal want to use the money from the sale of Snapdeal's logistics arm Vulcan Express and FreeCharge to run a downsized marketplace, they said.
One of the sources said the two founders were hoping for the backing of some early stage investors in Snapdeal and hoped to take the proposal to Jasper's board.
Both sources said it was unlikely the board would approve this, however, as Snapdeal's largest shareholder is keen to forge a deal with Flipkart.
A Snapdeal spokeswoman was not immediately reachable for comment on the founders' plans.
Bengaluru-headquartered Flipkart had revised its initial offer for Snapdeal to up to $950 million, Reuters reported last week.
(Reporting by Sankalp Phartiyal; Editing by Muralikumar Anantharaman)