Travis Kalanick, Uber’s CEO and Co-Founder, announced on Monday that its China segment Uber China will merge with Didi Chuxing, the biggest ride-sharing company in China. Uber and investors in Uber China will take a 20% stake in Didi Chuxing valued at $28 billion in last fundraising round in June. Didi Chuxing, along with Uber China valued at $8 billion, will come at a valuation of approximately $36 billion.
First of all, Didi Chuxing was the only rival against Uber China in China’s ride-sharing market. To capture more market share, both companies provided consumers and drivers with huge subsidies at the price of great loss. After the merge, Didi Chuxing will become the monopoly in the market and get to profitability after all burning money is unsustainable and operating blow cost is not allowed by new law in China.
Second, Didi Chuxing and Uber China have a bunch of investors in common, China Life Insurance, HillHouse Capital, Tiger Global and BlackRock. People familiar with the deal said that the deal was raised by common investors.
Third, getting rid of the loss making business will pave the road for Uber to go public in the future and focus on expanding in other countries.
After the merger
Uber will become the largest shareholder in Didi Chuxing after the merger.Travis Kalanick will join Didi’s board, while Didi founder Cheng Wei will join Uber’s board as part of the deal. Uber China will operate independently under Uber’s brand, but all data will be owned by Didi Chuxing.
“I have no doubt that Uber China and Didi Chuxing will be stronger together,” Travis Kalanick said in the announcement, “That’s why I’m so excited about our future, both in China—a country which has been incredibly open to innovation in our industry—and the rest of the world, where ridesharing is increasingly becoming a credible alternative to car ownership.”