August came in with a huge merger news that has left the world talking. The big boys of global ride hailing came together yesterday, after being arch rivals for quite some time now. The de facto acquisitions of Uber’s Chinese operations by Didi left the world confused and curious about the hows’ and whys’ of the arrangement.
China has been a tough market for U.S based services and products with it’s stronghold on the market that has a loyal user base. Many people think this to be Uber’s face saving strategy which isn’t the case, with Uber now having the highest owned stake in Didi Chuxing of 17.7%
It was a carefully crafted deal, that was viable for both the giants. Rumors have been doing rounds that the merging process had been going on for more than a month, with none of the two parties involved willing to give in. In this battle of dominance in China Didi and Uber burned a lot of cash, with deep discounts for customers and paying drivers hefty amounts, to gain market share. DiDi blew war horns by raising a colossal capital of $7.3 billion funding with Apple pitching in, but didn’t use it to let Uber swindle it’s funds in China and wither away. By forming this alliance Didi made a smart move by removing competition from China and perhaps elsewhere, this was more than the facade of Uber’s tactical exit, it was a win win situation for both the giants.
Didi Chuxing and Uber’s combined business operations in China now stand at a whopping $35 billion. Didi as a gesture of bonding is investing $1 billion in Uber to help fight market share battles in other important emerging markets, of which India is speculated to be the next battle ground. India could be on Uber’s radar for investment with China already dealt with, Uber’s ability to invest now increases twofold to say the least. A lot of growth is in the card for the recently merged duo, this can be inferred from the statement give by Li Zijian, senior director for international strategy at Didi, on how his company was just taking 1.1% of China’s taxi market. With China’s new regulations in tow that legalize Uber & Didi from November, is a sign of growth for Didi in the near future and in turn for Uber, being it’s largest single shareholder yet.
There is trouble in paradise for Didi’s allies which are fondly called the ‘Anti-Uber Alliance’. Didi with 3 other companies ( Lyft in the U.S., Ola in India, Grab Taxi in S.E Asia) that formed a coalition in December last year (2015) allowed them to share customers & tech besides competing with Uber. After Uber’s deal with Didi, this alliance is sure to fall and looks rocky as of now. The cherry on the top that will make the allies get on the edge of their seats is the fact that Travis Kalanick, Uber’s CEO will sit on Didi board, while Cheng Wei, Didi’s Chairman will join the Uber board.
This act that unfolded yesterday could be a bold statement for global investors and nudge them to put more money in local players, because as of today, the merger reinstates the fact that local companies can fight a strong battle against global giants. It could change the way investors think going forward and give the local players the chance they deserve.