India's Flipkart raises $1.4 bln in high stakes battle with Amazon

Sankalp Phartiyal

* Indian e-commerce firm Flipkart raises $1.4 bln in funding

* Tencent, Microsoft and eBay invest in Flipkart

* Flipkart to acquire eBay's India business

(Updates to add more detail, Flipkart spokeswoman comment,

context)

MUMBAI, April 10 (Reuters) - India's top e-commerce firm

Flipkart has raised $1.4 billion in its biggest

fundraising to date as it takes on U.S. tech giant Amazon.com

Inc for a larger share of the country's burgeoning

online retail market.

Chinese social media and entertainment firm Tencent Holdings

Ltd, the world's biggest software company Microsoft

Corp and online marketplace eBay Inc

participated in the funding round, Flipkart said in a statement

on Monday, which will value the Indian company at $11.6 billion.

That is lower than the $15 billion valuation achieved at its

last fundraising in 2015, reflecting how competition has

intensified in the e-commerce sector as companies vie for a

slice of the world's fastest-growing internet services market.

Amazon last year said it would invest over $5 billion in

India, and has recently expanded into online video and grocery

shopping, seeking to expand aggressively in a country where a

rising middle class is increasingly shopping online.

The fundraising also comes amid speculation Flipkart may be

interested in a takeover of smaller rival Snapdeal. Local media

have reported SoftBank Group is keen to sell its stake

in Snapdeal in exchange for a stake in Flipkart.

"We are delighted that Tencent, eBay and Microsoft - all

innovation powerhouses - have chosen to partner with us on their

India journey," Flipkart's founders Sachin Bansal and Binny

Bansal said in a statement.

"This deal reaffirms our resolve to hasten the

transformation of commerce in India through technology."

As part of the fundraising, eBay invested $500 million in

Flipkart for a stake, according to a separate statement by both

companies. In exchange, eBay will merge its India operations

with Flipkart.

A Flipkart spokeswoman said eBay.in will continue to operate

as a "separate business" within the Flipkart group, which

includes fashion portals Myntra and Jabong.

The company will assess capital requirements across the

group and use the new funds to "add value to customers, increase

shareholder returns and bring us closer to profitability," the

spokeswoman said.

Ebay, one of the pioneers of online commerce in India, runs

a marketplace selling everything from bed sheets to smartphones

but with little marketing and few exclusive launches on its

India portal sales have lagged behind Flipkart and Amazon.

Flipkart did not disclose the amounts invested by Microsoft

and Tencent.

Prior to the latest round, Flipkart had raised more than $3

billion in funding via 10 rounds, mostly from international

investors but it has burnt through cash in a competitive market.

In January, Flipkart appointed a former Tiger Global

Management executive as its CEO in its biggest management

reshuffle as it tried to focus on margins over sales volume.

U.S. hedge fund Tiger Global is Flipkart's biggest investor,

owning about a third of the company.

A deal with Snapdeal would provide Flipkart with added heft

to compete against Amazon.

A distant third player, Snapdeal has declined to comment on

sale talks and said that it remains focused on achieving

profitability, but recent layoffs have heightened speculation

about a takeover.

Research firm Gartner called Flipkart's fundraising a

positive step.

"This is good news for Flipkart as it solidifies it as a

market leader at least in the short term, keeping competition

especially Amazon at bay," said Sandy Shen, research director at

Gartner.

"Flipkart has been and will continue to make acquisitions to

increase scale, and the next challenge is to strategize the path

to a sustainable business model within a set timeframe."

(Editing by Rafael Nam and Susan Fenton)