UPDATE 3-India's Snapdeal calls off sale to Flipkart in setback for SoftBank

* Snapdeal founders to run stripped-down version of co - sources

* Plan has backing of some early investors - source

* Snapdeal's biggest investor SoftBank says respects decision (Adds detail on Flipkart deal, comments from Snapdeal chief executive)

MUMBAI/BENGALURU, July 31 (Reuters) - India's Snapdeal said it had decided to remain independent and was ending all talks regarding a sale, bringing the curtain down on months of discussions around a possible acquisition of the e-commerce firm by bigger rival Flipkart.

The failure to forge a deal is a setback for SoftBank Group , the largest investor in Snapdeal, as the Japanese firm has been trying to engineer an all-stock transaction for months, as a means to secure a sizeable stake in Flipkart, India's largest home-grown e-commerce player.

The decision also puts e-commerce giant Amazon.com on a stronger footing in India, as for now it deprives Flipkart of a cash infusion from SoftBank which had been expected to come in parallel with this deal.

The board of Jasper Infotech, which runs Snapdeal, had agreed in principle to Flipkart's revised buyout bid of up to $950 million and a deal was pending approval of smaller shareholders, Reuters reported last week.

But obstacles remained with sources saying founders Kunal Bahl and Rohit Bansal were considering an alternate path.

"The company has now decided to pursue an independent path and is terminating all strategic discussions as a result," said Snapdeal in a statement on Monday.


SoftBank, led by charismatic founder Masayoshi Son, said it respects Snapdeal's decision to pursue an independent strategy.

"We look forward to the results of the Snapdeal 2.0 strategy and to remaining invested in the vibrant Indian e-commerce space," SoftBank said in a brief statement.

The Flipkart deal had a "number of onerous requirements," a source involved in the talks told Reuters ahead of Snapdeal's decision on Monday.

The Bengaluru-headquartered company was seeking non-compete commitments from Bahl, Bansal and some other Snapdeal investors which are difficult to enforce, a second source added.

Flipkart also insisted on getting approval from all Snapdeal shareholders for the deal to go through, two sources said.

"The deal being contemplated was incredibly complex to execute," Snapdeal's Bahl said in an internal email to employees after the company announced its decision to end talks.


Founders Bahl and Bansal's plan to run a stripped-down version of its online marketplace has the backing of the firm's early investors Kalaari Capital and Nexus Venture Partners, a third source said.

Snapdeal will be able to financially sustain itself with the sale of certain non-core assets, the firm said in its statement.

The company does not need additional funding and has a clear roadmap to making upward of 1.5 billion rupees ($23.4 million) in a year, Bahl wrote in his email to staff.

Snapdeal last week inked the sale of its digital payments unit FreeCharge to Indian lender Axis Bank for $60 million.

Standard Chartered's private equity arm is in talks to acquire Snapdeal's logistics arm Vulcan Express, a fourth source told Reuters.

"We will need to keep a tight control on our costs and work towards becoming a hyper efficient culture delivering profitable growth, month on month," Bahl said in his email.

Reuters has previously reported that the founders' bid to keep Snapdeal independent is likely to result in layoffs at the company, which currently employs about 1,200 people.

One of the sources told Reuters that after asset carve outs and anticipated layoffs, the company is likely to be left with a workforce of just 250 employees.

A spokeswoman for Snapdeal was not immediately reachable for comment on the company's rationalization plans. (Reporting by Sankalp Phartiyal and Nivedita Bhattacharjee; Editing by Euan Rocha and Keith Weir)