(Bloomberg)—China’s Meilishuo.com, a fashion retailer backed by Tencent Holdings Ltd., is merging with rival Mogujie.com to form a company with $3 billion in sales, marking the latest alliance in the country’s e-commerce industry.
Mogujie founder Chen Qi will become the CEO of the merged entity, and Tencent, China’s largest social media company, will increase its investment, according to a statement by the new company. The combined company, with sales of 20 billion yuan last year, also is valued at $3 billion, according to an email sent to employees on Monday by Chen.
The deal will help the companies compete with Alibaba Group Holding Ltd. and JD.com Inc., which dominate a Chinese e-commerce industry projected to expand to 3.6 trillion yuan ($547 billion) this year. JD.com is No. 1 in the Internet Retailer 2015 China 500; Alibaba is not ranked in the China 500 because it operates online marketplaces and does not own merchandise. Smaller operators are combining to gain scale and end costly battles for market share. The combination of the fashion sites, both backed by Hillhouse Capital Management, follows the mergers of travel sites Ctrip.com International Ltd. and Qunar Cayman Islands Ltd. and group-buying startups Meituan.com and Dianping.com.
“They are following the footsteps of other company mergers as funding has become tight,” said Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong. “It’s not like they have irreplaceable resources, and hence investors are pickier in such a competitive industry.”
Costly battles
Meilishuo, No. 90 in China 500, had sought to raise about $300 million since April, people familiar with the matter have said. The company, whose name means “Beauty Talk,” was considering a U.S. initial public offering at a $2.5 billion valuation, people familiar with the matter said last year.
Mogujie (No. 281), founded in 2011 and backed also by IDG and Qiming Venture Partners, has 130 million registered users and raised a D round of more than $200 million in November, according to statements from the company in December.
Meilishuo, founded in 2009 by Xu Yirong, runs an online marketplace selling clothes, shoes and handbags. It has about 15,000 merchants on its website and runs a mobile application that has been downloaded 100 million times, according to a company brochure distributed in April.
The company didn’t respond to an email seeking comment.
“The enhancement after the merger can help us race ahead of any other company that attempts to compete with us,” Chen said in the letter, signed with his English name “Shark.” “This will bring us closer to the standards of an excellent listed company.”
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