SAN FRANCISCO (Diya TV) – Uber Technologies Inc. is selling its China operations to heated rival Didi Chuxing, the company announced Sunday, effectively putting to an end the expensive price war it was facing and freeing up its focus to expand in other markets and possibly take the company public.
The truce ends a bruising battle between the two companies for leadership in China’s ever-expanding ride-hailing market. Uber has already lost $2 billion in China after two years of operation in the country, according to Bloomberg, which prompted investors to turn up the heat on the company to cut a deal. As part of the sale, Didi will invest $1 billion in Uber’s global company, the Bloomberg report stated.
Uber has said on previous occasions that it’s profitable in the U.S. and Canada, but the developing losses in other markets it sought to expand into have undercut the company’s progress in doing such. The massive losses in China have been one of the main sticking points standing in the way of a possible IPO. However, this has not stopped Uber from expanding to other territories, such as its UberEats service. Uber drivers have also been increasingly having a positive experience with the company since more laws and services (click here for more info) are now targeted towards Uber and their drivers, helping their popularity grow.
“The biggest existential threat to Uber over the last two months was that in China they were losing capital in a way that potentially threatened the rest of their worldwide operations,” said Arun Sundararajan, a New York University professor. “The fact is that in the short term it may seen as a loss, but in the long run it’s a good move. Now they can focus on the rest of the world.”
With the China matter behind them, Uber can now turn to other countries where it’s fighting for marketshare, such as Grab in Southeast Asia, Ola in India and Lyft Inc. in the U.S.
Didi is buying Uber’s brand, business and data in China, the Chinese company said in a statement. Uber Technologies and Uber China’s other shareholders, including search giant Baidu Inc., will receive a 20 percent economic stake in the combined company. Didi founder Cheng Wei and Uber Chief Executive Officer Travis Kalanick will join each other’s boards.
“Didi Chuxing and Uber have learned a great deal from each other over the past two years,” said Cheng, who is also Didi’s chief executive, in the statement. “This agreement with Uber will set the mobile transportation industry on a healthier, more sustainable path of growth at a higher level.”
Didi’s valuation after the deal is complete will be $35 billion, Uber was last valued at nearly $70 billion. The arrangement has “removed the big roadblock for an Uber IPO,” Sundararajan said. “Losing money in China would’ve given many pre-IPO investor pause.”
Last year, Chinese companies Didi and Kuaidi combined their forces, creating a homegrown alliance to fight off Uber. 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, in a round that valued the company at about $28 billion.
The deal is still subject to government approval, officials will have to determine the range of competition. “The ministry of commerce has to define the size of the market and see if the car-hailing business Didi and Uber are offering can be replaced by similar services,” said Deng Zhisong, senior partner at Beijing-based law firm Dentons. “If you count taxi services and public transportation, the car-hailing sector will not have a market share that significant.”
