Didi to buy China’s Uber operations

The deal marks an end to Uber’s foray to establish an independent foothold in China.

A man walks past an Uber station outside a shopping mall in Beijing. Picture: AFP.

Global ride-hailing giant Uber Technologies Inc. has given up its costly battle for China’s riders, swapping its local operations there for a minority stake in the country’s homegrown champion, Didi Chuxing TechnologyCo.

Uber and investors in its UberChina unit will take a 20 per cent stake in Didi, said the Chinese company, which was valued at $US28 billion in its latest fundraising round. Combined with Uber’s China business that was valued at around $US8 billion, Didi will have a valuation of around $US36 billion.

After the merger, Uber will become the largest shareholder in Didi. The Chinese ride-hailing company will also invest $US1 billion in Uber as part of the deal, a person familiar with the matter said.

The deal marks an end to Uber’s efforts to establish an independent foothold in China, which began in 2013 and was considered a rare case of a US tech firm making inroads in the local market. Besides Apple Inc., which has struggled of late with slowing sales in China, few other companies have gone toe-to-toe with Chinese rivals for local consumers.

“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,” Uber Chief Executive Travis Kalanick said in a blog post obtained by The Wall Street Journal. “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.”

Mr. Kalanick will join Didi’s board, while Didi founder Cheng Wei will join Uber’s board as part of the deal, Didi said in a statement.

After the merger, Uber will own 17.7 per cent of Didi, with other existing investors in UberChina, including Baidu Inc., taking another 2.3 per cent of Didi.

Didi said UberChina will be kept as an independent brand and operation, but that all data will be owned by Didi.

In a joint statement, Mr. Cheng and Jean Liu, Didi’s president, called UberChina a “great competitor” in an “epic battle” for the fast-growing ride-hailing business in China.

Uber’s foray into private ride-hailing services in China began before Didi, which was founded in 2012, added that feature to its taxi-hailing business. UberChina has spent more than $US1 billion over the past three years trying to gain traction, by offering subsidies to both drivers and riders. An analysis by consultancy BDA China Ltd. showed that UberChina and Didi both paid about 5 yuan a ride in subsidies, split between driver and passenger.

“We all knew the subsidies were clearly unsustainable,” said Duncan Clark, a longtime China tech consultant who runs the Beijing-based BDA. “The subsidies cost Uber and they couldn’t have gone public with that black hole.”

The deal comes after China last week released nationwide guidelines to legalise ride-hailing services. China’s new industry regulations, which will go into effect in November, forbid the running of ride-hailing services below cost.

Some investors welcomed the deal saying the long fight in China held the companies back from profiting in the short term.

“This makes sense for both companies,” said Andrew Teoh, managing partner of Ameba Capital, an early investor in Didi, noting the deal follows the same logic that led to other mergers among Chinese tech start-ups in recent years.

Didi has been a formidable fundraising machine, refusing to back down as Uber poured billions in subsidies into China. Didi raised $US7.3 billion in its latest fundraising round in June, which included a $US1 billion investment from deep-pocketed Apple. For Didi, Uber’s global stretch could help the Chinese firm grow its business overseas. When Uber announced a partnership with Ant Financial’s Alipay mobile payment system earlier this year, it propelled Alipay into 69 countries; previously it was only in a handful of markets.

Under the new agreement, Didi will have China’s three biggest technology companies as shareholders — e-commerce major Alibaba Group Holding Ltd, gaming-to-social leader Tencent Holdings Ltd and Baidu.

— Eva Dou and Yang Jie contributed to this article.

Wall Street Journal