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Deal leads to another $1 billion investment for Uber's global business, sources say
Massive news out of the ride-hailing industry today.
Uber and Didi Chuxing—up to now the largest, most financially capable rival to Uber in China—have announced formal plans for Didi to acquire Uber's entire business assets in China, including its brand, business operations, and data.
Though no purchase amount has been disclosed publicly, Bloomberg's sources say Didi will invest $1 billion in Uber’s global business as part of the deal. Additionally, Uber will receive 5.89 percent of the newly combined company with preferred equity interest. Baidu and other Chinese shareholders in Uber will receive a 2.3 percent economic interest in Didi as well.
It’s no secret that Uber struggled to turn a profit in China.
In January of this year, Uber CEO Travis Kalanick criticized Didi for spending $80 million weekly on “subsidies,” or discounts to its rides, in order to dominate the Chinese market. The practice, which ride-hailing companies from Uber to Lyft and others have used all around the world to build ridership, would mean that Didi was spending $4 billion every year simply to undercut Uber.
Trying to stay competitive, Uber admitted that it was losing $1 billion every year in China. Meanwhile, the company was already profitable in the U.S. In a blog post about the merger with Didi, Kalanick expresses satisfaction that he and his team at least tried to “build both Amazon and Alibaba at the same time.”
“However, as an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your heart,” wrote Kalanick. “Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there. 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.”
Merging the two companies raises many questions, of course.
The most obvious question is whether China’s regulatory body will block the deal on the grounds that it creates a monopoly. If the two companies are seen as operating in the ride-hailing market specifically, it seems obvious that the two heavyweights will combine to make an untouchable behemoth of a business. But Deng Zhisong, senior partner at Beijing-based law firm Dentons, told Bloomberg that the merger could be approved if the two companies are simply seen as competing within the broader transportation market.
It's worth noting that China has been critical of foreign monopolies in the past. Last year, the government fined Qualcomm 6 billion yuan ($975 million) as a penalty for its monopolistic practices in the region.
I’ve reached out to Uber to see if they have any concerns about having the deal blocked.
The other big question is how the Uber-Didi merger affects Didi’s existing global partnership with Lyft and other ride-hailing companies in India and Southeast Asia. Over the first half of 2016, Didi and Lyft spearheaded an alliance with GrabTaxi and Ola Cabs in India, allowing any customer in one region (say a Lyft customer in the U.S.) to continue using their app of choice in a different region (China) by hailing cars from the partner service (Didi).
With Uber raising massive funding rounds throughout the world and planting flags in every market, the alliance was a way for country-specific companies to fight back. But now that Didi owns Uber’s China business, what becomes of Lyft's partnership with Didi?
Alexandra LaManna, a spokesperson at Lyft, tells me over email that the company will take a second look at the alliance: "Over the next few weeks, we will evaluate our partnership with Didi."
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Uber is a ridesharing service headquartered in San Francisco, United States, which operates in multiple international cities. The company uses a smartphone application to arrange rides between riders and drivers.