Alibaba to Merge China Food Delivery Units to Counter Meituan

Alibaba Group Holding Limited (NYSE: BABA) is planning to combine its food delivery units and raise funds for the combined business, escalating the battle with Tencent-backed Meituan Dianping for dominance of China’s thriving on-demand services market.

The units to be combined include food delivery platform Ele.me and food and lifestyle services firm Koubei. Alibaba is hoping to raise between USD 3 Billion and USD 5 Billion for the combined entity and the entity could be valued up to USD 25 Billion.

Fundraisers for the platform are expected to launch later this year. The new unit would also include Alibaba’s Hema Fresh, a chain of cashless supermarkets that offers fresh produce and food delivery.

Supported by social media and gaming giant Tencent Holdings, Alibaba’s units and Meituan are fighting for supremacy in China’s online-to-offline (O2O) market where apps link smartphone users with bricks-and-mortar businesses to offer local food delivery and other offerings.

According to Reuters, Alibaba and Meituan are the two main companies in China that offer complete O2O services. Alibaba’s three units are complementary to each other and it has strategic logic to combine them into one platform to compete against Meituan.

The value of O2O transactions in China increased 72% last year to USD 146 Billion.

Ele.me and Baidu Waimai had a combined 55% of China’s food delivery market in the first quarter compared to Meituan’s 41%.

During April, Alibaba bought the leftover shares that they had not already owned in Ele.me in an all cash deal that valued the startup at USD 9.5 Billion. The e-commerce giant and its financial affiliate Ant Financial Services Group formerly owned a 43% stake in the business.

Koubei, a 50-50 joint venture of Alibaba and Ant Financial, had a valuation of USD 8 Billion at the end of 2017.

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