Flipkart as an online retailer began as a seller of books and music CDs and now offers a broad range of products. Photo: Ramesh Pathania/Mint
Bangalore: India’s largest e-commerce firm Flipkart India Pvt. Ltd is buying a majority stake in online fashion retailer Myntra.com in a deal that is set to be announced this week, two persons with direct knowledge of the matter said.
The long-awaited cash-and-stock deal is likely to value Myntra at about $300-$330 million, Mint had reported on 6 May.
The proposed deal was agreed upon in principle by early April, but the companies and their investors took “a while” to work out a deal structure that would be in compliance with Indian laws, one of the persons cited above said.
Two common investors at Flipkart and Myntra, Tiger Global Management and Accel Partners, first proposed the deal last year—partly in response to aggressive moves by Amazon.com Inc.’s India unit to carve out a larger market share in the country. Flipkart’s co-founders Sachin Bansal andBinny Bansal, and Myntra co-founder and chief executive Mukesh Bansalapproved the deal earlier this year, people with direct knowledge of the talks said earlier in May.
Flipkart, which has received $560 million in funding since starting out in 2007, is also in discussions to raise another round of funds, another person familiar with the matter said.
Flipkart declined comment.
Myntra too declined to comment but a spokesperson said that the company would hold a press conference on Thursday “to announce an important strategic development”.
India’s e-commerce market, valued at $3.1 billion by securities firm CLSA, is becoming increasingly competitive.
After two years of consolidation that involved many e-commerce sites shutting shop, the top four—Flipkart, Snapdeal.com, Myntra andJabong.com—have raced away from the rest of the pack and have been joined by Amazon.
Amazon launched its India marketplace in June last year and has already built one of the largest online product assortments in the country. Amazon has been lobbying heavily to convince India to allow foreign direct investment (FDI) in e-commerce, and the company’s executives have toldMint that it is investing “hundreds of crores” in India.
Given Amazon’s intentions, its financial muscle and technology expertise, local firms would need large amounts of money to compete with the online retailer, analysts say.
Flipkart’s imminent deal with Myntra will help the company keep Amazon at bay.
“The battle now is clearly drawn up,” said Deepak Srinath, director (corporate finance-technology) with Allegro Capital Advisors, which is an investment bank. “Amazon has been very quick and aggressive and Flipkart needed this consolidation to stay ahead and stay relevant.”
India prohibits FDI in e-commerce but allows it in the marketplace model, where third-party sellers sell directly to shoppers through e-commerce platforms.
To circumvent regulations, most e-commerce firms have set up complicated structures where their back-end entities receive funds from global investors, while on paper the e-commerce platforms are run separately.
This structure has caught the eye of regulators.
Both Flipkart and Myntra are being probed by Enforcement Directorate of India (EDI) though the companies don’t expect that to have any effect on the proposed deal.
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