Flipkart And Myntra Enter Final Lap In Negotiation

BANGALORE: Flipkart could be weeks away from concluding a deal to buy rival Myntra as the two sides engage in last-minute haggling over valuation before concluding what will be the biggest transaction in India’s online retail industry. People with knowledge of the talks said fashion portal Myntra is aiming for a valuation of $400 million (Rs 2,400 crore).

The company, based in Bangalore, is founded by Mukesh Bansal, 38, an IIT-Kanpur graduate. But Flipkart, also based in Bangalore and cofounded by 32-yearold IIT-Delhi alumnus Sachin Bansal (the two Bansals are not related), may not be willing to concede that much.

Negotiators are considering a "target valuation" of $350 million, and may push the offer to $370 million, but there is "no possibility" of valuing Myntra at $400 million, according to a source with direct knowledge of talks. Representatives of Flipkart and Myntra declined to comment. The deal is being stitched during a period of frenetic activity in the ecommerce space.

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Amazon, the world’s largest online retailer, is steadily building out its India operation -- it will start selling fashion items in the next few weeks -- while the country adds hundreds of thousands of new online shoppers every month.

The timing of the transaction also takes into account an initial public offering of Flipkart’s shares next year, most probably on the Nasdaq stock exchange in the United States, sources said. Flipkart, which raised $360 million in two rounds in 2013, was valued at around $1.6 billion in July last year.

The valuation is "significantly more" now, the sources said without disclosing how much. India's largest online retailer hit the billion-dollar milestone in annual gross merchandise value last month.

The sources who briefed ET about the contours of the deal that is taking shape said that Mukesh Bansal will most likely be given independent responsibility for all fashion retail at the combined business, including Myntra as well as Flipkart’s fashion unit. This is the model that Amazon followed when it acquired shoe and clothing retailer Zappos in 2009, which even now runs as an independent company. A holding company will own shares in Flipkart and Myntra.

A Flipkart-Myntra combine is aimed at shoring up the former's leadership in India's booming online retail industry, projected to reach $8.5 billion (over Rs 51,000 crore) in size in 2016. Moreover, Amazon is making its presence felt just eight months after entering India -- it has introduced about 20 categories of products and more are on the way.

Myntra's Mukesh Bansal has said the company needs about $100-150 million (Rs 600 crore to Rs 900 crore) in the next three years to reach its goal of becoming a Rs 20,000-crore fashion company in 2020. Flipkart has made a commitment to pump in over $100 million (Rs 600 crore) into the company, said a consultant.

"This will help (the country’s biggest fashion portal) Myntra take on competition like Jabong and other fashion sites. And by joining hands, both will be able to take on Amazon, which is the major driving force in these talks," said the consultant who has worked with Flipkart and Myntra.

Ashish Jhalani, head of advisory firm eTailing India, said the potential merger indicates how Amazon has changed the game in a short time. "It is imperative that the merger goes through and a very formidable domestic player emerges that can compete with Amazon and eBay," said Jhalani.

Common investors such as earlystage investor Accel Partners and investment fund Tiger Global are expected to remain invested in Myntra, as also recent investor Premji Invest, which participated in the Rs 300-crore funding round in the fashion portal in February.

The two companies now have three common investors — Accel, Tiger and Belgium-based family office Sofina. Myntra’s other investors are IDG Ventures India and Kalaari Capital.

  "If a deal happens, it will get done by end of the month," a source said, adding that the transaction will have elements of cash and stock without providing details.

Fashion, which delivers over 35% in operating margin, is among the most contested categories in ecommerce and has seen the emergence of players like Jabong, Fashionara and Limeroad and even web-only brands like Yepme and Zovi.

"The Flipkart and Myntra merger will create the first Indian e-tailing powerhouse, and provide a big fillip to India's still nascent but very promising e-commerce industry," said Arvind Singhal, chairman of retail advisory services firm Technopak.

Flipkart, which introduced fashion in 2012, has a focus on providing a large selection, while Myntra is seen as a curated fashion destination with focus on quality of selection.