Legal opinion is divided on whether fashion e-tailer Myntra’s acquisition of Jabong would need to be okayed by the Competition Commission of India (CCI), the country's antitrust regulator.
At least three competition law experts VCCircle spoke to, following the announcement of the $70 million deal on Tuesday, offered differing opinions on whether it would trigger CCI scrutiny under Section 5 of the Competition Act, which deals with combinations.
KK Sharma, a former head of merger control at the CCI and now a competition lawyer, said that since Jabong’s asset base and turnover were lower than the requisite thresholds, CCI scrutiny is unlikely to be triggered.
Flipkart-owned Myntra said on Tuesday it agreed to acquire its main competitor Jabong from Global Fashion Group, in a deal that would create India’s biggest fashion e-tailer.
Sharma said in an emailed response to a query that, according to government notification issued in March, if the acquired entity has an asset base of less than Rs 350 crore or turnover of less than Rs 1,000 crore, the acquisition of such an entity is exempt from Section 5 of the Act for five years from the date of notification.
He said that based on information available in public domain, it appeared that the turnover of Jabong was Rs 869 crore in the last financial year, which is less than Rs 1,000 crore. “Going by the nature of business, the asset base of an e-portal should rather be less than Rs 350 crore. Therefore, subject to the accuracy of the figure, being relied upon from public domain, there appears a possibility that a merger filing under competition law before the Competition Commission of India (CCI) may not be needed,†he said.
However, the issue could be more complicated than that. Although Jade Eservices Pvt. Ltd, the main vendor on Jabong, had assets of Rs 519.5 crore as on 31 March 2015, the site itself is run by Xerion Retail Pvt. Ltd, which had assets of just under Rs 6 crore. Xerion had annual sales in excess of Rs 1,000 crore.
Another competition law expert, who deals with mergers and acquisitions, but did not want to be named because of commercial considerations, said that both the above thresholds--Rs 350 crore on assets and Rs 1,000 crore on annual revenue would have to be triggered to attract CCI scrutiny.
Another lawyer, MM Sharma, who heads competition law practice at Vaish Associates Advocates, however said that while deciding on the issue of CCI scrutiny, the total assets and turnover of the combined entity would have to be considered. “The total sales and assets of Flipkart, Myntra and Jabong would have to be taken into account. Till now, the way the commission has defined the market, it has not differentiated between fashion and non-fashion. For them, the entire market is retail, whether brick and mortar or online. The orders passed till now have not taken online commerce as a separate market,†he said.
According to the CCI’s combination laws, if the total assets of the combined entity in India exceed Rs 2,000 crore or their total annual turnover is more than Rs 6,000 crore, it would trigger a scrutiny, Sharma of Vaish Associates said.
Myntra and Jabong will have a combined base of 15 million monthly active users. Jabong has about 1,500 international brands, sports labels, Indian ethnic and designer labels and 150,000 styles from over a thousand sellers, VCCircle reported on Tuesday.
Although the combined entity will have a 70% market share in the online apparel shopping segment, its overall share of the market (including physical stores) will be significantly smaller.
Another former CCI official, who did not want to be identified as he is not authorised to talk to the media, said that the competition watchdog can take suo moto cognizance in case any company tries to evade scrutiny. “If the assets or turnover are above the threshold limit and the company does not apply to the CCI for clearance, the CCI has to take suo moto action,†this former official said.
However, several other e-commerce deals in the recent past did not attract CCI scrutiny. These include an acquisition of a 62% stake in online jewellery portal Caratlane by Tata group's Titan Co Ltd in May this year for Rs 357 crore, Mahindra group’s acquisition of baby care product etailer Babyoye in February 2015 and taxi aggregator Ola’s $200 million buyout of rival TaxiForSure the following month.
Rahul Singh, competition head at law firm Trilegal, said the deal will need the CCI's permission but getting clearance will not be a concern as the combined market share of Myntra and Jabong will be very less when compared with brick-and-mortar companies.
Anand Pathak, partner at P&A Law Offices, said Flipkart's acquisition of Jabong does not mandate any regulatory intervention at this stage and that the deal is not likely to have any serious competitive impact as there are many other players in the market.
Jayesh H, founding partner at Juris Corp, offered a different view. He said there are two ways to look at the market--either consider both offline and online retail as one market or consider online retail as a separate market. “The buyer may want to project it as the same market to say that the market share is very less. But competitors may want to argue otherwise and push the CCI to consider online market as separate," Jayesh said.
Anil Kumar, CEO and founder, RedSeer Consulting, said Jabong's market share is not large enough to change market dynamics. “Other players like Voonik and LimeRoad operate on different models, and there is enough space for multiple players to exist," Kumar said. "The issue is not competition with each other, the issue is profitability and retaining customers."
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