Uber abandons car-hailing battle with China rival Didi Chuxing
Uber has agreed to merge its Chinese operations with those of rival Didi Chuxing, throwing in the towel on its costly battle for the Chinese ride-hailing market.
Under the terms of the deal, set to be announced in coming days, Didi will acquire all of Uber China’s operations and investors in Uber China will get a 20 per cent stake in Didi, according to two people close to the transaction.
Didi, which is China’s largest ride-hailing company, will also invest $1bn in an equity stake in Uber’s global business, in a deal that brokers a truce between the two of the most fiercely competitive car-hailing companies in the world.
The two rivals have poured billions of dollars into subsidies for passengers and drivers as each has sought to gain market share in China.
Uber’s decision follows reports of mounting pressure from investors who were concerned the San Francisco-based company was wasting money in a market it could not win.
The idea of a tie-up was first aired by Travis Kalanick, Uber’s chief executive, more than two years ago when he met Cheng Wei, Didi’s founder, in Beijing.
As the fight for market share has heated up, both Uber and Didi have been on a fundraising spree. Didi raised more than $7bn in debt and equity in June, a month after a $1bn investment from Apple, while Uber raised $3.5bn from Saudi Arabia’s sovereign wealth fund around the same time.
The unprecedented scale of the fundraising has also made clear how costly it would be for both sides to continue the battle.
Discussions about a deal only got serious during the past few weeks, after the fundraisings were complete, according to a person close to the transaction.
Didi’s new alliance with Uber could prove awkward for Lyft, Uber’s main rival in the US. Didi is an investor in Lyft, and the two companies have linked their apps so that Didi’s Chinese passengers can summon a Lyft car while travelling in the US.
Mr Kalanick is also chief executive of Uber China and has personally overseen its growth, spending nearly one in five days in the country last year.
Uber’s strategy in China has relied on heavily subsidising its rides, and the company was losing more than $1bn a year there as it gave bonuses to drivers and discounts to passenger.
As Uber’s market share grew, China became Uber’s biggest market in terms of daily rides, surpassing the US.
While Uber has often stated that it has roughly 30-35 per cent share of the China ride-sharing market, the terms of the merger appear to reflect Didi’s own calculations that its market share is roughly 80 per cent.
Didi says it provides 14m rides a day and has 300m users, mainly in China. Uber has not released comparative figures.
The merger is reminiscent of a similar consolidation that created Didi in February 2015, when Didi Dache and Kuaidi Dache — having spent hundreds of millions of dollars in subsidies to woo users — abruptly announced a $6bn merger, forming Didi Kuaidi, later renamed Didi Chuxing.
One analyst with knowledge of the situation said that both Uber and Didi were under pressure from their financial backers to do something about the subsidies they were paying.
The deal comes on the heels of new regulations last week that legalised the online ride-hailing industry across China.
Both companies may have been awaiting that development to push ahead with the merger, with the new framework giving the industry a more solid legal footing in China.
Uber is the biggest shareholder in Uber China, whose other investors include Baidu, the Chinese search company, and HNA, the Chinese travel conglomerate.
News of the deal was first reported by Bloomberg News. Rumours of a transaction were widespread on Chinese social media over the weekend, as an alleged draft blog post by Mr Kalanick about the deal circulated online.
Uber declined to comment. Didi did not respond to multiple requests for comment.