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August 2, 2016

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Didi in US$35b deal to buy Uber China

CHINA’S largest ride-hailing service provider Didi Chuxing said yesterday it was acquiring Uber’s China operations through a share swap deal that effectively eliminates its biggest rival in the country.

Didi’s move comes only a year-and-a-half after it acquired another local rival Kuaidi.

Uber China thus becomes the latest foreign Internet brand to tie up with a local partner in an intensely competitive market.

Didi will combine the San Francisco-headquartered company’s China-based technology capabilities and brand assets.

But Uber will continue to operate independently, Didi said.

The merger is valued at around US$35 billion with Uber holding a 20 percent stake in Didi, making the American firm its biggest shareholder.

Uber founder Travis Kalanick will join Didi’s board while Didi Chuxing founder Cheng Wei will be on the Uber board.

Reuters reported that Didi was valued at US$28 billion and Uber China US$7 billion.

“Didi has been a fierce competitor and I respect all that Didi and their team have accomplished,” Uber Chief Executive Officer Travis Kalanick said in a statement. “Sustainably serving China’s cities, and the riders and drivers who live in them, is only possible with profitability.”

Uber and Didi have been locked in a price war over the last two years with Didi covering a far bigger group of consumers and wider geographical area than Uber.

Uber operates in 60 Chinese cities, serving over 40 million rides per week. Didi serves 16 million rides per day.

Kalanick said earlier this year that the company was losing US$1 billion a year in China.

In a letter to their employees, Didi’s Chief Executive Officer Cheng Wei and President Jean Liu said that “Uber is a spectacular rival” and urged staff to put more focus on providing better consumer experience for riders.

Rumors of the share swap started circulating last week with consumers expressing concern that rides would become costlier after the merger.

Both Didi and Uber offered subsidies making rides ordered from the Internet platforms cheaper than regular cabs.

“The market will see an even stronger player after the merger, forcing smaller ones such as Shenzhou and Yidao to offer new services to attract users,” said Zhang Xu, a research director at Analysys International’s Internet mobility research center.

Investors will clearly welcome the deal as they want the price war to end as soon as possible, he added.

Industry watchers also pointed out that turning the massive losses in Uber China into a solid investment might clear the way for an expected Uber public stock offering next year.

Didi raised massive amount of capital before yesterday’s merger. In June, Didi said it raised US$4.5 billion in its latest round of fundraising from market leaders such as China Life, Ant Financial as well as new shareholders.

Apple Inc recently agreed to invest US$1 billion in Didi. Tencent, Alibaba, China Merchants Bank and SoftBank have also invested in Didi. Baidu is one of the top Chinese investors of Uber China.

Last week, China laid out a framework to license drivers and vehicles for online ride-hailing applications and made it clear that they could operate legally in the country.

Didi said it was “the world’s first nationwide online ride-booking regulations.”


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