Didi to buy Uber's China business in $35 billion deal

[August 01, 2016]  (Reuters) - Ride-hailing firm Didi Chuxing said on Monday it will buy Uber's China operations, in a deal that will give Uber a stake in the company and end bruising competition between the two.

The deal is valued at $35 billion, according to a source familiar with the matter who didn't want to be named before the deal was made public, combining Didi's $28 billion worth and Uber China's $7 billion valuation. Didi confirmed the agreement on its official microblog, but gave no valuation.

San Francisco-based Uber Technologies will receive a 5.89 percent stake in Didi - but will have disproportionate "economic interests" of 17.7 percent with another 2.3 percent interest going to Uber China shareholders.

Uber will continue to operate independently, the Didi posting said. "Cooperating with Uber will give the entire mobile travel industry a healthier order and a period of a higher level of development," it said.

Uber CEO Travis Kalanick will join Didi's board, while Didi Chuxing chief Cheng Wei joining the Uber board.

In an internal message to staff viewed by Reuters, Kalanick wrote: "Sustainably serving China's cities, and the riders and drivers who live in them, is only possible with profitability. This merger paves the way for our team and Didi's to partner on an enormous mission, and it frees up substantial resources for bold initiatives focused on the future of cities - from self-driving technology to the future of food and logistics."

He said Uber was operating in more than 60 cities in China and serving more than 40 million rides a week.

CHALLENGING CHINA

China has been a challenging market for Uber, which has been burning through more than $1 billion a year in a price war with Didi. Uber is profitable in the United States, Canada and about 100 other cities.

"It makes huge sense. Uber faces an uphill task in China especially since Didi is multiple times larger by transaction value and city coverage," said Hong Kong-based Richard Ji, co-founder of All-Stars Investment Ltd, which manages about $900 million and owns Didi stock.

"This will lead to favorable outcomes for both companies. The biggest benefit is cost savings, they no longer have to give out subsidies to drivers and passengers. It will give pricing power as the new entity will become the dominant player. That means profitability will come sooner than later," he added.

Under the deal, Didi will also invest $1 billion in Uber, which operates globally outside China, the source said, adding to a series of deals and joint ventures Didi has struck in recent years.

INTERNATIONAL AMBITION

Analysts said Didi's latest move is a signal of its readiness to step beyond its home market.

A mascot of Didi Chuxing is seen at the company's headquarters in Beijing, China, May 18, 2016. REUTERS/Kim Kyung-Hoon

"This clearly shows Didi's global ambitions and its desire to work together with Uber to tap Chinese travelers, who are going out in big numbers. There's a possibility the two could work together in other markets," All-Stars Investment's Ji said.

Didi said in its posting it will look to expand its international business and enter markets like Hong Kong, Taiwan, Macau, Japan, South Korea, Europe and Russia.

Didi - itself created last year from a merger of two firms backed respectively by e-commerce giant Alibaba Group <BABA.N> and social network firm Tencent <0700.HK> - has invested $100 million in Lyft, Uber's main rival in the United States.

It has also formed an alliance with Lyft, India's ride service Ola and Southeast Asia's ride-hailing startup Grab in an effort to compete with Uber's global dominance.

The deal is the latest sign of a global Internet or technology company struggling to break into China's cut-throat market, where local entrepreneurs have built formidable businesses, partly helped by a supportive government.

All of China's technology heavyweights will be stakeholders in Didi, as Uber shareholder Baidu <BIDU.O> will gain a stake. Apple Inc <AAPL.O> recently made a rare $1 billion investment in Didi.

China last week issued guidelines that establish a long-awaited framework for the booming ride-hailing industry and remove uncertainty for firms such as Didi and Uber.

(Reporting by Heather Somerville in SAN FRANCISCO, Denny Thomas in HONG KONG, Rama Venkat Raman in BENGALURU, Jake Spring and Beijing monitoring team in Beijing, and Jeremy Wagstaff in SINGAPORE; Editing by Edwina Gibbs and Ian Geoghegan)

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