Will Jabong save Flipkart from Amazon?

Flipkart is one of those companies that never ceases to surprise or stay out of the news. Just when reports of trouble on the valuation front stopped appearing, the company announced an acquisition of its competitor.

Flipkart's Myntra is acquiring Jabong from its parent company — The Global Fashion Group (GFG) — in an all-cash deal for $70 million. Jabong had created a niche for itself in the online fashion retail segment, one of the fastest-growing segments in the e-commerce space. Based on this logic alone, the acquisition makes sense for Flipkart. However, there are other details which suggest the contrary.

The valuation paid by Flipkart looks cheap. But one should also consider the fact that Aditya Birla group valued the company at half the price Flipkart paid for the company. Also, it has been reported that Jabong, in early 2015, was asking for a price of $1 billion when it was in talks withAmazon and by September 2015, the valuation had fallen to $500-800 million.

Secondly, there were governance issues in Jabong, which Flipkart was willing to look the other way. Reliance Retail bid $60 million for the acquisition, but wanted to conduct a complete due diligence before takeover. This was not acceptable to the promoters of GFG.