The board of online retailer Snapdeal has rejected the initial offer of $800m from rival e-commerce company Flipkart, according to undisclosed sources.

The amount offered by Flipkart falls short of its earlier offer of $1bn, as part of a letter of intent (LoI) signed between the parties in May.

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Founded by Sachin Bansal and Binny Bansal, Flipkart recently completed its due diligence of Snapdeal, which was performed by professional services firm EY.

However, it is expected that the retailers will continue negotiations of the buyout offer.

A source familiar with the development was quoted by ET as saying: “The due diligence has been clean, with no major red flags raised. Therefore, the price being quoted significantly undervalues the company.”

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As part of the merger talks, Japan-based investor SoftBank expressed its plans to invest more than $1bn in Flipkart, after the transaction is completed. SoftBank is the majority stakeholder in Snapdeal with a 33% stake.

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“The due diligence has been clean, with no major red flags raised. Therefore, the price being quoted significantly undervalues the company.”

Separately, the beleaguered Snapdeal has been looking for buyers in connection with the sale of its business entities, namely digital payments platform FreeCharge and logistics arm Vulcan Express.

Other stakeholders of the company include Kalaari Capital, Nexus Ventures, company Founders Kunal Bahl and Rohit Bansal and other private investors.

In May, the cash-strapped retailer raised $17m in a round of funding, led by Nexus Venture Partners.

In an effort to consolidate its business and to improve its balance sheet, the loss-making company slashed jobs.