Chinese based fashion e-commerce fashion startup, Mogujie.com announces that the company will be acquiring its biggest competitor, Meilishuo for an undisclosed amount. The acquisition was done with the approval from venture backers for both companies and involved a 2:1 stock swap.
Details regarding the acquisition still have not been made public but the combined company would worth around $3 billion based on an estimation by China Money Network. Besides total value of combined company, the news network also learns that Mogujie's current CEO, Chen Qi who is also a former Alibaba executive will continue to lead the merged company and is expected to receive another new investment worth $3 billion.
Forbes reported that Chen told the reporters that "After acquiring Meilishuo, we will avoid competition and save lots of costs. The new company will provide differentiated services and focus on its long-term goal instead of short-term rivalry."
Through the acquisition, Mogujie will be able to focus more towards improving its products and services instead of trying to compete with others. Tencent Holdings also was reported to have agreed to increase its stake in Mogujie after the merger is completed.
The Hangzhou-based company is valued at $1.7 billion in its latest valuation and is struggling to obtain another round of investment due to tightening of spending done by lots of investors in China. However, the company managed to raise $200 million last year while its rival, Meilishuo latest investment obtained was back in 2012.
Investors are tightening their budget as there is a growing trend by Chinese startup to be using too much money just to compete with its rival instead of improving their service. Besides that, according to The Wall Street Journal, investors are also cautious after last year's China's stock tumble bringing lots of company to low valuation.
The move taken by Mogujie is similar like the one done by the ride-hailing service, Didi Kuaidi Joint Co. which is a result of a merger between Didi Dache and Kuadi Dache back in February last year. The ride-hailing company merges as they are struggling to compete with another growing company from the United States, Uber Technologies Inc.
Complete details regarding the merger are expected to be announced by the company soon once the acquisition is complete. Analyst expected that the merger will create a dominant player in women's fashion e-commerce industry. The new company could also compete with the Alibaba's Taobao bazaar which has been popular among Chinese buyers.
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