Uber China to merge with local rival Didi to create $35 billion company

 01 Aug 2016 - 11:43

Uber China to merge with local rival Didi to create $35 billion company
A mascot of Didi Chuxing is seen at the company's headquarters in Beijing, China, May 18, 2016. (REUTERS/Kim Kyung-Hoon/File Photo)

 

By Eric Newcomer

Uber Technologies Inc. will sell its China business to Didi Chuxing, the dominant ride-hailing service in the country, according to people familiar with the matter. The deal ends a costly battle between the two companies, which competed for customers and drivers.

The valuation of the combined business will be $35 billion, said the people, who asked not to be named because the details aren’t public. Investors in Uber China, an entity owned by San Francisco-based Uber, Baidu Inc. and others, will receive a 20 percent stake in Didi, the people said. Uber will continue to operate its own app in China for now.

In addition to Uber selling its Chinese subsidiary, the complex deal involves Didi making a $1 billion investment in Uber, people familiar with the matter said. Didi had no immediate comment, and Uber declined to comment.

“As an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your heart,” Travis Kalanick, chief executive officer of Uber, wrote in a blog post obtained by Bloomberg. “I have no doubt that Uber China and Didi Chuxing will be stronger together.”

Last year, China’s ride-hailing leaders Didi and Kuaidi joined forces, creating a homegrown juggernaut. The merged company Didi Chuxing brought together backers Alibaba Group Holding Ltd. and Tencent Holdings Ltd., the country’s most valuable internet businesses. Apple Inc. joined in this year with a $1 billion investment in Didi. The Chinese government passed a new rule last week that legalized ride-hailing services, paving the way for further expansion of these businesses.

But Uber’s investors had been clamoring for the company to sell off its China assets. Both Uber and Didi have been spending significantly to compete in China. 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.

“Uber and Didi Chuxing are investing billions of dollars in China, and both companies have yet to turn a profit there,” Kalanick wrote in the blog post. “Getting to profitability is the only way to build a sustainable business that can best serve Chinese riders, drivers and cities over the long term.”

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 U.S.’s Lyft Inc., India’s Ola and Southeast Asia’s Grab to create a global force to take on Uber. Grab CEO Anthony Tan said in a statement on Monday that the impending deal is a victory for Didi and underscores how the ride-hailing business favors domestic players.

In China, Uber ventured where few U.S. technology companies have succeeded. In 2005, Yahoo! Inc. made a similar deal, selling its businesses in China to Alibaba, along with a $1 billion investment -- one of the Silicon Valley company’s best bets.

While Uber will walk away from operations in China, it is taking a significant stake in the largest player there. By shedding its massive losses in China, the move will help Uber clear the path for an eventual initial public offering.

Bloomberg