DIDI & UBER CEOS TO JOIN EACH OTHER’S BOARDS
Didi Chuxing, the dominant ride-hailing service in China, said it will acquire Uber Technologies operations in the country, ending a battle that cost the two companies billions as they competed for customers and drivers.
Didi will buy Uber’s brand, business and data in the country, the Chinese company said in a statement. Uber Technologies and Uber China’s other shareholders, including search giant Baidu, will receive a 20% Economic stake in the combined company. Didi founder Cheng Wei and Uber CEO Travis Kalanick will join each other’s boards.
The truce brings to an end a bruising battle between the two companies for leadership in China’s fast-growing ride hailing market. Uber has been spending at least $1 billion a year to gain ground in China, while Didi offered its own subsidies to drivers and riders to build its business.
“Didi Chuxing and Uber have learned a great deal from each other over the past two years,” said Cheng, who is also CEO, in the statement. “This agreement with Uber will set the mobile transportation industry on a healthier, more sustainable path of growth at a higher level.”
Didi’s valuation after the deal will be $35 billion, said people familiar with the matter, asking not to be named because the details aren’t public.
Last year, China’s ride-hailing leaders Didi and Kuaidi joined forces, creating a home grown juggernaut to fight off Uber. The merged company Didi Chuxing brought together backers Alibaba Group Holding and Tencent Holdings, the country’s most valuable internet businesses. Apple joined in this year with a $1- billion investment in Didi, in a round that valued the company at about $28 billion. The Chinese government passed a new rule last week that legalized ride-hailing services, paving the way for further expansion of these businesses.
Uber’s investors had been clamoring for the company to sell off its China assets and focus on more promising opportunities. Uber has lost more than $2 billion in the country, people familiar with the matter said. Meanwhile, Uber was profitable in developed markets in the first half of 2015, the people said.
“As an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your heart,” Kalanick wrote in a blog post obtained by Bloomberg before publication. “I have no doubt that Uber China and Didi Chuxing will be stronger together.”
As an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your heart. Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there
Co-Founder & CEO, UBER
The deal is subject to government approval. While the combination of the top two players in a market would often raise regulatory scrutiny, officials will have to determine the range of competition. “The ministry of commerce has to define the size of the market and see if the car-hailing business Didi and Uber are offering can be replaced by similar services,” said Deng Zhisong, senior partner at Beijing-based law firm Dentons. “If you count taxi services and public transportation, the car-hailing sector will not have a market share that significant.”
Didi Chuxing and the China unit of US rival Uber could face its first hiccup after China’s commerce ministry (Mofcom) said on 2 August it had not received a necessary application to allow the deal to go ahead.
However, Didi said there was no need to seek regulatory approval, as the two ride-hailing companies lack profits, which meant they weren’t required to file with the ministry.
Didi’s acquisition of Uber’s China operations, announced on 1 August, will create a roughly $35 billion ride-hailing giant and could raise monopoly concerns as Didi claims an 87% market share in China. Uber China is the second largest player.
Mofcom, one of China’s antitrust regulators, said at a news briefing that the two firms need to seek approval for the deal to go ahead. It had been unclear previously whether such a filing would be required as both firms are loss-making in China.
“Mofcom has not currently received a merger filing related to the deal between Didi and Uber,” ministry spokesman Shen Danyang said. “All transactors must apply to the ministry in advance. Those that haven’t applied won’t be able to carry out a merger” if they fall under applicable antitrust and merger rules, he said.
In an emailed statement to Reuters on Tuesday, Didi contested Shen’s assertion that the firm is required to apply for approval. “We are in close communication with authorities,” said Didi.
The purchase of Uber’s China business may complicate Didi’s alliance with other ride-hailing startups around the world. Didi had agreed to work with the US’ Lyft, India’s Ola and Southeast Asia’s Grab to create a global force to take on Uber.