Ride-hailing service Uber has decided to merge its operations in China with rival Didi Chuxing.
Under the terms of the deal, which is expected to be announced soon, Didi will acquire all of Uber China's operations, and Uber China investors will have 20 percent stake in the new company, an unnamed source told Reuters. Besides that, Didi will also invest US$1 billion in Uber's global business.
"Uber [has faced] an uphill task in China since Didi is multiple times larger by transaction value and city coverage," Hong Kong-based Richard Ji, co-founder of All-Stars Investment, which manages about US$900 million and owns Didi stock, told Reuters.
"[This tie-up] will lead to favorable outcomes for both companies. The biggest benefit is cost savings [as] 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.
Echoing Ji, Forrester's analyst, Wang Xiaofeng, said: "Investors of both Didi Chuxing and Uber are keen to put an end to the cash-burning competition in China, and the sooner they turn profitable, the better. Before Uber, Didi's oversea partners are mainly second-tier players. Didi can now leverage Uber's global presence to help Didi better navigate the international market."
She added that the merger will help the company reach out to more consumers too. "Uber and Didi have different offerings that have different benefits to consumers. For example, there was a calculation of which car service platform is the best choice, and the calculation shows Uber is better for short-distance ride, and Didi is better for longer ones. They have different loyalty programmes as well, and consumers can choose whichever best for them."
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