Section 1:

Case Study
Topic: Merger of Flipkart and Myntra
Strategy: Merger and Acquisition
Introduction:
Mergers and Acquisitions are an ultimate change for a business. Nothing can be more
challenging and difficult as a merger and acquisition. Merger means combining two
commercial companies into one and acquisition means a company acquiring assets from
another company. After acquisition, both companies may continue to exist. The motive can
be access to new markets that were previously closed due to costs or to cover the losses or
ability to compete in the market, etc.
The year 2014 saw the merger of two of the biggest e-commerce majors of that time in the
Indian market, Flipkart and Myntra in a deal worth 2000 crore. Since both the entities were
involved in the same industry, this is an example of a horizontal merger.  Briefly, the Indian
online retail industry holds 0.55% of the overall retail industry which is about Rs. 25.3 billion
and includes unorganized and organized details. The industry players mostly followed a non-
inventory model or an inventory-based model which is commonly termed a marketplace
mode.
Brief Overview of both entities:
Flipkart:
Flipkart or flipkart.com was initially started by two ex-amazon employees, Binny Bansal and
Sachin Bansal in 2007 with a total investment of Rs. 4 lakhs. By 2010, Flipkart started with
mobile phones, DVD’s/VCD’s, etc. by march 2011, Flipkart had a GMV (gross merchandise
value) of about US$10 million. As it increased its pace, the company added various
categories like laptops, cameras, health care, e-learning, clothing, personal products, and
home appliances. Flipkart now deals in everything from consumer goods to apparel along
with its supply network being valued at around 10000 crores.
Myntra:
Being a leader in fashion e-tail, Myntra or Myntra.com was the idea of 2 flatmates namely,
Ashutosh Lawania and Mukesh Bansal in Bengaluru. Further, two more founders joined the
same year namely, Raveen Sastry and Vineet Saxena. Initially, Myntra was an on-demand
personalization platform online for customized services where the customers used to
personalize their demands like diaries, keychains, T-shirts, etc. As time passed the company
received a series of fundings from different capitalists during regular intervals. In 2014,
Myntra generated an amount of U$115 million with six rounds of funding.
Merger:
With e-commerce gaining fast popularity and stiff competition from foreign players like
Amazon, Flipkart thought it fit to avail the benefit of the Myntra’s 30% market share in
fashion e-commerce. Flipkart held a major chunk of Indian online retail sector; however, it
was lagging in one area- Fashion and apparel. Whereas Myntra had significant domain
knowledge with an excellent team along with good relations with lifestyle brands. The
merger made it possible for both investors Flipkart and Myntra to strengthen their parts.
Thus, Flipkart strengthened its structure of product offering while Myntra got a chance to
leverage its infrastructure. With this acquisition, Flipkart became the largest e-commerce
player by a fair margin in the country and very well established itself in the crowded market.
The two companies basically merged together in light of expansion of Amazon’s services in
the country. And there was pressure on existing players as Walmart’s entry into Indian e-
commerce market was coming up. Also, unrealistic pricing was creating a dent in profit
margins which were hard to come by. The combined entity of Flipkart and Myntra overcame
many of these issues
In January 2014, The Times of India reported that Flipkart had approached Myntra with a
merger proposal. Initially, the offer was to merge Myntra with Flipkart. However, later,
Flipkart changed the offer and agreed to run both companies (Flipkart and Myntra)
independently. Experts said that two common investors campaigned for the deal – Tiger
Global Management, LLC (Tiger) and Accel. If the deal went through, then it would save
both investors from injecting fresh capital into the loss-making duo. In addition to this, the
merger would create the undisputed leader in the Indian online space and keep the
competitors of both companies, such as Amazon and Snapdeal (competitors of Flipkart) and
Jabong (competitor of Myntra), at bay. Now the plan for the merger was that Myntra will
continue to operate as a separate brand, and its founder Mukesh Bansal will occupy a seat on
Flipkart's board, heading all fashion at the new entity. 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. However, the companies will not integrate the back end. The two teams
will also function separately, but people holding stock options in Myntra will now hold the
same in Flipkart.
However, the deal making wasn't a smooth road as legal due diligence involving a plethora
of foreign investors with different domiciles threatened it at various stages. In fact, Myntra
went to on raise a $50 million round from Premji Invest and others even as it had the Flipkart
offer on the table. Myntra continued to engage with newer investors for additional funds until
the transaction details fell in place in early April 2014.
The merger of Flipkart and Myntra sent a message that Indian e-commerce companies need
to consolidate operations to get their spending under control which will help them in reducing
duplication. High cost of customer acquisition is one of the primary challenges faced by the
Indian e-commerce industry. And by joining forces, Flipkart and Myntra realized huge cost
savings, as both of these basically target the same customers and hence joined forces.
Questions based on the case:
1. What were the synergy values that were generated by this merger of Flipkart and
Myntra?
2. How were the share-holdings of various stakeholders adjusted post the deal? Was
there any increase or decrease among the shareholder holdings?
3. What were the strategic goals that the merger was supposed to achieve?
Michael Porter’s competitive forces and value chain creation:
Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E
Porter of Harvard Business School as a simple framework for assessing and evaluating the
competitive strength and position of a business organisation. This theory is based on the
concept that there are five forces that determine the competitive intensity and attractiveness
of a market. Porter’s five forces help to identify where power lies in a business situation. This
is useful both in understanding the strength of an organisation’s current competitive position,
and the strength of a position that an organisation may look to move into. The five forces are:
 Buyer Power
 Supplier Power
 Competitive Rivalry
 Threat of new entrants
 Threat of substitutes

Value Chain Creation:

Developed by Michael Porter and used throughout the world for nearly 30 years, the value
chain is a powerful tool for disaggregating a company into its strategically relevant activities
in order to focus on the sources of competitive advantage, that is, the specific activities that
result in higher prices or lower cost. Porter breaks value chain analysis into two areas-
primary activities and secondary activities.
Primary operations have an immediate impact on the products or services to be supplied in
terms of production, maintenance, sales, and support. These are-
 Inbound logistics
 Outbound logistics
 Production
 Marketing and Sales
 Service
The support, or secondary, activity generally plays a role in each primary activity. These are-
 Procurement
 Human resource management
 Infrastructure
 Technological Development

VIRO Analysis:
VIRO is an acronym for a four-question framework focusing on- Value, Rarity, Imitability
and Organisation. The VRIO framework is a strategic analysis tool designed to help
organizations uncover and protect the resources and capabilities that give them a long-term
competitive advantage.
  Valuable: A resource or capability is said to be valuable if it allows the firm to exploit
opportunities or negate threats in the environment. If a resource does not allow a firm
to minimize threats or exploit opportunities, it does not enhance the competitive
position of the firm.
 Rare: A resource is rare simply if it is not widely possessed by other competitors. Of
all of the VRIO criteria this is probably the easiest to judge. When a firm maintains
possession of valuable resources that are rare in the industry, they are in a position of
competitive advantage over firms that do not possess the resource.
 Imitable: An inimitable (the opposite of imitable) resource is difficult to imitate or to
create ready substitutes for. A resource is inimitable and non-substitutable if it is
difficult for another firm to acquire it or to substitute something else in its place. A
valuable and rare resource or capability will grant a competitive advantage as long as
other firms do not gain subsequent possession of the resource or a close substitute.
 Organisation: The fourth and final VRIO criterion that determines whether a resource
or capability is the source of competitive advantage recognizes that mere possession
or control is necessary but not sufficient to gain an advantage. The firm must likewise
have the organizational capability to exploit the resources.

McKinsey’s 7s Model:
The McKinsey 7S Model is a framework for organizational effectiveness that postulates that
there are seven internal factors of an organization that need to be aligned and reinforced in
order for it to be successful. The 7S Model specifies seven factors that are classified as "hard"
and "soft" elements. Hard elements are easily identified and influenced by management,
while soft elements are fuzzier, more intangible, and influenced by corporate structure.
The hard elements are as follows:
 Strategy
 Structure
 Systems
The soft elements on the other hand are:
 Shared values
 Skills
 Style
 Staff

The framework is used as a strategic planning tool by organizations to show how seemingly
disparate aspects of a company are, in fact, interrelated and reliant upon one another to
achieve overall success. The McKinsey 7-S Model is applicable in a wide variety of
situations where it's useful to understand how the various parts of an organization work
together. It can be used as a tool to make decisions on future corporate strategy. The
framework can also be used to examine the likely effects of future changes in the
organization or to align departments and processes during a merger or acquisition. Elements
of the McKinsey Model 7s can also be used with individual teams or projects.
Section 2
PESTEL Analysis:
PESTEL analysis is a tool that is used to identify critical external factors that may affect a
corporation. e factors may be opportunities- methods that provide competitive advantage or it
could be threats, which could become so severe the firm must shut down. A corporation using
this analysis are examining how political, economic, social, technological, legal and
environmental forces affect their business. The details of the analysis are as under-
 Political: Political factors address various laws like education, employment that are
applicable in a country. It also includes government stability. It answers questions like
Is the political environment stable or likely to change? What government
policies could be beneficial or detrimental to our success?

 Economic: Economic factors are straightforward. They’re anything that affects the

state of the economy, profits, and revenue. These economic indicators are usually
measured and reported by Central Bank and other Government Agencies. The
economic outlook is of extreme importance for a business as it is the area in which the
business operates.

 Social: Social factors focus primarily on consumers and prospective customers.

Buying trends, lifestyle choices, population rates, education level and social classes
affect how consumers buy. Social norms and pressures are key to determining
consumer behaviour and they are also considering while conducting the analysis.

 Technological: Technological factors are linked to innovation in the industry, as well

as innovation in the overall economy. Not being up to date to the latest trends of a
particular industry can be extremely harmful to operations. Every business uses
technology to sell products. It’s appropriate to study access to modern technology,
communication methods, technological change rates and prices.

 Environmental: Environmental factors concern the ecological impacts on business. As

weather extremes become more common, businesses need to plan how to adapt to
these changes. This aspect of the PESTLE is crucial for certain industries particularly
example tourism, farming, agriculture, etc. However, need to switch to sustainable
resources; ethical sourcing has compelled every organization to consider the
environmental factors.

 Legal: There is often uncertainty regarding the difference between political and legal
factors in the context of a PESTEL analysis. Legal factors pertain to any legal forces
that define what a business can or cannot do. Political factors involve the relationship
between business and the government. Political and legal factors can intersect when
governmental bodies introduce legislature and policies that affect how businesses
 operate. These particularly include- industry regulations, licences and permits, labour
laws etc.

PESTEL Analysis of Cadbury:

1. Political: Cadbury being an international company has wide-scale operations across
the country. Approximately 75% of its business is outside of the United States with a
strong presence in emerging markets. As a result of such a wide scale of operations,
various compliances outside of the US for Cadbury also affects the company like new
Labour laws of UK or the recent tiff between US and China led to decreased sales in
China, with no Brexit in place, Cadbury had increased its resources and warehousing
facilities across Europe.

2. Economic: Any event that causes a currency devaluation or fluctuation in the currency
values, especially in the developing markets such as, Argentina, Brazil, Mexico,
Russia, South Africa, etc. affect the sales and revenue generated by the company.
Like demonetization in India, or others, increase the restrictions to the trade of raw
materials or finished products to and from different countries and lead to dip in sales.

3. Social:  people across the world have become conscious about what they eat. The
preferences have been evolving at a much faster rate, with consumers demanding a
more holistic meal than just fast food or a snacking item. With this thought in mind,
Mondelez, the parent company of Cadbury has launched the concept of well-being
foods. The underlying idea is to help people enjoy their snacks & Cadbury chocolates
without guilt, and help them stay healthy. The future targets set by the company to
help people stay healthy to include expanding the 10 existing well-being brands in
their portfolio and achieve the goal of doubling the growth as compared to the base
rate.

4. Technological: The continuous improvement in technologies employed has enhanced

the quality of the product served by Cadbury. These developments like the orange
twirl launched in the UK, are a result of a continuous research and development
process. Cadbury uses social media, such as Facebook, as a form of connecting and
communicating with its customers. This helps reinstate the relationship between the
organization and its customers by increasing the awareness of its products.

5. Economic: Cadbury believes in staying at the forefront to fight against the changing
climate. With regulations set by the UN enforcing laws for companies around the
world to reduce the carbon footprint, Cadbury has been using this opportunity to work
towards reducing the CO2 emitted through its operations, and also to plan out their
sustainability activities accordingly to achieve their global targets on time.
 6. Legal:  The legal laws across various countries require the producer to display
contents on the package of the product. These rules keep changing and are different
across the various regions. They are considered more serious issues in European
countries as compared to countries like India or Africa. Keeping a tab on these
changing regulations is a must for the company to function smoothly and efficiently. 
Merger and Demerger:
A merger is an agreement that unites two existing companies into one new company. There
are several types of mergers and also several reasons why companies’ complete mergers.
Mergers and acquisitions are commonly done to expand a company’s reach, expand into new
segments, or gain market share. All of these are done to increase shareholder value. A merger
between companies will eliminate competition among them, thus reducing the advertising
price of the products. In addition, the reduction in prices will benefit customers and
eventually increase sales. Mergers may result in better planning and utilization of financial
resources.
Types of Mergers:
The most common type of mergers are listed below:
 Conglomerate Merger: Conglomerate merger is a union of companies operating in
unrelated activities. The union will take place only if it increases the wealth of the
shareholders.
 Market Extension Merger: Companies operating in different markets, but selling the
same products, combine in order to access a larger market and larger customer base.
 Product Extension Merger: Such mergers happen between companies operating in the
same market. The merger results in the addition of a new product to the existing
product line of one company.
 Horizontal Merger: A horizontal merger is a type of consolidation of companies
selling similar products or services. It results in the elimination of competition; hence,
economies of scale can be achieved.
 Vertical Merger: vertical merger occurs when companies operating in the same
industry, but at different levels in the supply chain, merge. Such mergers happen to
increase synergies, supply chain control, and efficiency.

Demerger:
A de-merger is a corporate restructuring in which a business is broken into components,
either to operate on their own, or to be sold or to be liquidated as a divestiture. A demerger
allows a large company, such as a conglomerate, to split off its various brands or business
units to invite or prevent an acquisition, to raise capital by selling off components that are no
longer part of the business's core product line, or to create separate legal entities to handle
different operations. Demergers are a valuable strategy for companies that want to refocus on
their most profitable units, reduce risk, and create greater shareholder value.
Types of Demergers:
There are two basic types of demergers namely-
  Spin-off: It is the divestiture strategy wherein the company’s division or undertaking
is separated as an independent company. 

 Split-up:  business strategy wherein a company splits-up into one or more independent
companies, such that the parent company ceases to exist.
Merger of Times Bank and HDFC Bank:
HDFC Bank merged with Times Bank in February 2000. This was the first merger of two
private banks in the New Generation private sector banks category. Times Bank was
established by Bennett, Coleman and Co. Ltd., commonly known as The Times Group,
India's largest media conglomerate. The merger deal was struck with a stock swap whereby
the shareholders of Times Bank would get one share of HDFC Bank for every 5.75 shares
held. The Times Bank thereby merged with HDFC Bank and the emerging entity continues
to function as HDFC Bank. With one stroke the merger helped HDFC Bank become the
largest of the private sector banks in the Indian banking industry.   The merger increased the
customer base of HDFC Bank by 2,00,000 taking the figure to 6,50,000.   It provided cross-
selling opportunities to the increased customer population. The capital adequacy of HDFC
Bank was 10.3 percent post-merger and further increased up to 11.1 percent after the
proposed preferential offer to maintain the current level of holdings of different classes of
investors was implemented.