BANSALS—SACHIN AND BINNY AT FLIPKART AND ESPECIALLY MUKESH AT MYNTRA

This Merger seems to have strategic reasons for the business combinations.

Positioning• Taking advantage of future opportunities that can be exploited when the

two companies are combined. For example, a telecommunications company might improve its position for the future if it were to own a broad band service company.

Gap Filling• One company may have a major weakness (such as poor

distribution)whereas the other company has some significant strength. By combining the two companies, each company fills-in strategic gaps that are essential for long-term survival.

Rationale behind Merger

Bargain Purchase• It may be cheaper to acquire another company then to invest internally.

Diversification• It may be necessary to smooth-out earnings and achieve more consistent long-

term growth and profitability.

Short Term Growth• Management may be under pressure to turnaround sluggish growth and

profitability. Consequently, a merger and acquisition is made to boost poor performance.

• The Indian e-commerce market was worth 75,000 crore, in 2013 according to a joint report by KPMG and Internet and Mobile association of India.

• India has the potential to double its economic contribution via Internet, from 1.6 percent GDP at present to 2.8 and 3.3 percent by 2015 [MCkensy’2012].

• Indian E-commerce is most likely to generate employment for 1.45 million people in coming two years.

Indian E-Commerce Market

Rationale of • Wanted Apparel products Specialization , deeper understanding of Fashion , aesthetic

presentation and experience fashion products to become the most popular category in near future.

• For Flipkart, setting up a huge fashion vertical means boosting margins, because fashion has the highest margins - 35 to 40 per cent - among all products sold online. Myntra has big plans with its private brands like Anouk, Dressberry and Roadster, which promise margins as high 60 per cent.

• Flipkart will bring in its capabilities in customer service and technology. Both companies will also net customers that have shopped on both portals - about 80 per cent of the country's online shoppers have shopped on either Myntra or Flipkart.

Rationale of

• To have a stronger distribution network with present ratio being at 70:250

• To Foray into the mobile platform

• To increase warehouse capacity by 4 times.

Reasons why Flipkart and Myntra merged

• To combat the threat being posed by foreign online retail competitors like Amazon and eBay and domestic rivals like Snapdeal and Jabong. This is supported by government policy of allowing foreign investment in ecommerce.

• Myntra’s strength in high-margin fashion and lifestyle category also made Flipkart make a merger offer to the former.

• Flipkart and Myntra together generate more than 50 percent of the online fashion sales and the companies aim to increase that number to 60-70 percent over time.

• Another common factor between them is surname of their owners. While Sachin Bansal and Binny Bansal launched Bangalore-based Flipkart in 2007 that has seen around Rs 6,100 crores in sales. Bangalore-based Myntra Designs, founded by IITian Mukesh Bansal has seen its profits range from 30 to 50 percent.

• Both companies have common investors. US hedge fund Tiger Global and venture capital firm Accel Partners hold significant shares in both the companies. And both also pushed Flipkart and Myntra to merge.

• Tiger and Accel together own 53 percent shares, while IDG Ventures and Kalaari have a combined stake of 28 percent in Myntra. In Flipkart, the two common investors (Tiger & Accel) together hold around 40 percent stake.

Revenues: By combining the two companies, they will realize higher revenues then if the two companies operate separately.

Expenses: By combining the two companies, they will realize lower expenses then if the two companies operate separately.

Cost of Capital: By combining the two companies, we will experience a Lower overall cost of capital.

Synergy value

Indian E-retailing market Size : $9.7 Billion CAGR : 35% Main Segments Contenders: Segment size1. B2B mjunction; India mart 80%2. B2C 20%a. Travel IRCTC 71%

AirlinesIbibo

Online shopping: 16%i. Fashion Jabong ,FlipKart 30%ii. Books FlipKart ,Snapdeal ,Amazon 15%iii. Baby care& Personal care FlipKart , Babyoye 10%

iv. Home décor Pepperfry 6%

v. Electronics Flipkart,Snapdeal,Amazon 34%

Revenues & losses 2013-14[Rs crores]Revenue Loss

• Flipkart 179 400• Amazon 168.9 321.3• Snapdeal 154.11 264.6Future:Intense competitionHigh cost due to poor infrastructureVery low marginArenas : Large vs Small Vehicle : Low cost vs Niche products Consolidation: M&AFlipKart gets dominant position in Fashion segment