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Uber and Rival Didi Chuxing to Combine in China Uber to Sell to Rival Didi Chuxing and Create New Business in China
(about 4 hours later)
SAN FRANCISCO — The great ride-sharing war in China has finally ended. HONG KONG — Until this week, Uber’s future in China seemed to hold promise.
Didi Chuxing, the largest ride-hailing service in China, plans to buy Uber China, the Chinese arm of the American ride-sharing giant, in a deal that values the new company at about $35 billion, according to two people with knowledge of the deal. A third person said Uber’s investors had been pushing it to make such a deal. Despite intense local competition, the market was one of Uber’s largest by ride totals. A Chinese operation was the personal project of founder Travis Kalanick, who traveled regularly to the country and gave speeches that cribbed from the jargon of Chinese Communist Party officials. His interest was backed up by billions in investment.
The merger is a great détente between the two companies, which for more than a year have been ruthlessly battling for market share in mainland China, spending tens of millions of dollars every month to attract riders and drivers. But on Monday, Uber, the ride-hailing company, known globally for competing ruthlessly against all comers, waved the white flag.
“Three years ago I traveled to China with a small group of people to see if we might be able to launch Uber there,” Travis Kalanick, Uber’s chief executive, said in a blog post shared with The New York Times that will be posted when the company officially announces the deal. “Most of the people we asked for advice thought we were naïve, crazy — or both.” In a stark signal of how difficult it is for American internet companies to thrive in China, Didi Chuxing, its fiercest rival there, said it would buy Uber China.
The sale, which will create a new company worth about $35 billion, according to two people with knowledge of the deal, signals the end of the great ride- hailing battle of China. A third such person said Uber investors had been pushing for such a transaction.
The merger is a great détente between the two companies, which for two years have been fighting relentlessly for market share in mainland China, spending tens of millions of dollars every month to attract riders and drivers.
If combining the two companies makes good economic sense — ending competition and creating huge scale — it’s also a repudiation of Uber’s ambitions, rare among American technology businesses, to take on local Chinese competitors in their huge home market.
Uber had pushed its way into a market that has gone almost untouched by major foreign tech companies in recent years. Its progress was widely watched and discussed by entrepreneurs and investors alike as a model for how to reach China’s 600 million internet users — a forbidding prospect considering the country’s well-funded local competitors and regulations aimed at blocking foreign businesses.
In selling, the company joins the ranks of American peers like Google and eBay, which were unable to capitalize on footholds in China.
“Three years ago I traveled to China with a small group of people to see if we might be able to launch Uber there,” Mr. Kalanick, Uber’s chief executive, said in a blog post shared with The New York Times that will be posted when the company officially announces the deal. “Most of the people we asked for advice thought we were naïve, crazy — or both.”
“However, as an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your heart,” he wrote. “Uber and Didi Chuxing are investing billions of dollars in China and both have yet to turn a profit there.”“However, as an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your heart,” he wrote. “Uber and Didi Chuxing are investing billions of dollars in China and both have yet to turn a profit there.”
Under the terms of the deal, which was to be announced as soon as Tuesday, the new company’s estimated worth is a combination of Didi Chuxing’s $28 billion valuation, according to these people, who requested anonymity because the information had not yet been made public, along with Uber China’s $7 billion valuation. Investors in Uber China will receive a 20 percent stake in the new company. Under the terms of the deal, which was to be announced as soon as Tuesday, the new company’s estimated worth is a combination of Didi Chuxing’s $28 billion valuation, according to these people, who requested anonymity because the information had not yet been made public, and Uber China’s $7 billion valuation. Uber China will receive a 5.89 percent stake in the new company.
Didi Chuxing will also make a $1 billion investment in Uber Global, which was last valued at $62.5 billion, according to these people. Bloomberg first reported news of the deal. Didi Chuxing will also make a $1 billion investment in Uber Global, which was last valued at $62.5 billion, according to two people with knowledge of the sale. Bloomberg first reported news of the deal.
The merger is the latest sign of the challenges American tech companies face in trying to enter the Chinese market. Over the past two years, Uber upended expectations in China and created a growing business in a country despite heavy regulation and internet filters that often keep foreign companies at bay. The early 2015 rollout of People’s Uber, a service that got ordinary Chinese drivers behind the wheel and taking passengers, helped Uber grab a chunk of market share from Didi. Over the past two years, Uber upended expectations in China and created a growing business there, despite heavy regulation and internet filters that often keep foreign companies at bay. The early 2015 rollout of People’s Uber, a service that got ordinary Chinese drivers behind the wheel and taking passengers, helped Uber grab a chunk of market share from Didi.
But the early success gave way to a protracted spending battle, as both Uber and Didi spent billions offering discounted rides and subsidizing driver fares. For Uber, the spending proved a bigger obstacle than regulations. Last week, Chinese officials said ride-hailing apps were legal and laid out a framework to license drivers. At the time Didi was mostly focused on an app that connected people to taxi cabs.
China has been the scene of many protracted spending wars by companies trying to attract customers, one of them involving Didi itself. Two years ago, when Didi merged with what was its largest rival at the time, Kuaidi, investor concern about overspending for market share helped lead to the deal. But Uber’s early success gave way to a protracted spending battle, as both Uber and Didi spent billions on discounted rides and subsidizing driver fares. For Uber, the spending proved a bigger obstacle than regulations; last week, Chinese officials said ride-hailing apps were legal and laid out a framework to license drivers.
China has been the scene of many protracted spending wars among companies trying to attract customers. Indeed, two years ago, Didi’s merger with what was its largest rival at the time, Kuaidi, was driven by investor concern about overspending for market share.
For all the public spats between Uber and Didi over subsidies and competition, they had been in talks at different levels about a potential tie up stretching back as far as the Didi Kuaidi merger in the beginning of 2015, according to a person with direct knowledge of the matter. That person said the two sides couldn’t overcome disagreements about valuations at the time.
In another quirk to the latest deal, two members of the same well known tech family were on opposite sides of the negotiating table.
Didi’s president, Jean Liu, is the daughter of Liu Chuanzhi, the Chinese founder of the largest computer maker in the world, Lenovo. Her cousin, Zhen Liu, is a vice president and regular spokeswoman for Uber China.
Although the tie up reassures investors and will help with business, Chinese analysts said it would probably lead to a decrease in subsidies. That would hurt users and drivers alike, they said, making it harder for smaller players to compete because their larger rival would no longer be saddled with the expense.
“For smaller companies like Yidao or Shenzhou, if they keep subsidizing users, it will only be temporary and will bring more financial burdens,” said Hong Bo, an independent technology commentator.
Meanwhile, Li Bo, a 22-year-old driver from Henan, China, said the loyalties of drivers like him lay with where they could get the best pay. That meant, he said, they would continue to follow the subsidies.
“All we care is who gives us the best deal,” he said. “If Didi buys Uber, we just work for Didi. It doesn’t really matter.”
Mike Isaac reported from San Francisco. Michael J. de la Merced contributed reporting from New York.