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Flipkart buys Myntra as Amazon aims to consolidate its position in Indian market

Thursday, 22 May 2014 - 7:20am IST | Place: Mumbai | Agency: undefined

India's largest e-tailer Flipkart on Thursday acquired the country's biggest fashion portal Myntra. This was seen as an attempt by the company to counter Amazon.com Inc's rapid expansion in the country e-commerce industry. 

Financial terms of the deal were not disclosed but according to one person with knowledge of the development, the transaction is worth about $300 million as reported by Reuters. 

dna had published a story on how Flipkart wanted to merge with Myntra as common investors were pushing for consolidation and merger of the two giants. 

The proposal was being pushed forward by their common investors Accel Partners and Tiger Global as per reports. 

A report carried by Times of India had explained the proposal being rolled out by Flipkart to acquire Myntra in mergers and acquisitions.

Flipkart had been looking to expand in newer categories such as fashion retailing and had been rolling out plans to expand its business in fashion apparels section. Flipkart is targetting a gross merchandise value of $1 billion and plans to have a complete portfolio to beat its challengers. 

Flipkart had raised $540 million so far from investors including Accel, Tiger, Dragoneer Investment Group and Morgan Stanley Investment Management. In October last year, it managed to raise $160 million, taking its Series E-funding to be the largest ever by any Indian Internet retailing firm.

India’s nearly $3.1 billion e-commerce market is small in comparison to China’s $200 billion market for online sales, but is expected to grow by seven times to $22 billion in five years, according to a CLSA report.

Both companies will be run independently, said Flipkart co-founder Sachin Bansal to Reuters. 

In a separate deal, Snapdeal raised $100 million from five investors including Temasek Holdings (Private) Ltd, its second fund raising this year.

Recently reports were doing the rounds that Myntra wanted to raise its capital and one way was to merge with Flipkart. Though meetings with Flipkart were underway, no official confirmation had been passsed out. But, once the merger of Flikart-Myntra is complete, it will be a challenge for leading players like Amazon and Snapdeal to compete with Flipkart-Myntra in terms of business strategies and drawing consumer base.  

The acquisition is likely to give Flipkart a stronger foothold in the fast-growing online fashion market.

"This acquisition helps us grab a bigger market share and compete better," Binny Bansal said.

Amazon, which entered India last June, has drawn up the battle lines by reducing prices, launching next-day delivery, adding new product categories and embarking on a high-voltage advertisement campaign.

With growing competition, smaller e-commerce companies would find it difficult to access fresh capital and cope with a price war, forcing them to merge with bigger rivals, retail consultants said.

Only 18 of the 52 e-commerce start ups in India - which raised $700 million in venture capital funding in three years ending 2012 - were able to raise follow-on investments last year, investment bank Allegro Advisors said.

The companies vying for a bigger slice of the Indian online retail market include Flipkart, New Delhi-based marketplace Snapdeal, Myntra, fashion e-tailer Jabong along with global giants Amazon and eBay Inc.

The Indian e-commerce market was worth $13 billion in 2013, with online travel accounting for over 70% of consumer e-commerce transactions.

Online sales of retail goods totaled $1.6 billion in 2013, according to research firm Forrester, and are expected to reach $76 billion by 2021, Technopak said.

With agency inputs

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