Didi, which was valued at $28 billion in its latest fundraising round, said Monday that Uber and investors in its UberChina unit will take a 20% stake in the company. Combined with Uber’s China business that was valued at around $8 billion, Didi will have a valuation of around $36 billion.
After the merger, Uber will become the largest shareholder in Didi. The Chinese ride-hailing company will also invest $1 billion in Uber as part of the deal, a person familiar with the matter said.
The deal marks an end to Uber’s efforts to establish an independent foothold in China, which began in 2013 and was considered a rare case of a U.S. tech firm making inroads in the local market. Besides Apple Inc., which has struggled of late with slowing sales in China, few other companies have gone toe-to-toe with Chinese rivals for local consumers.
This merger “frees up a substantial resources for bold initiatives focused on the future of cities—from self-driving technology to the future of food and logistics.” Uber Chief Executive Travis Kalanick said in a prepared statement. Operating in China “is only possible with profitability.”
“We were a young American business entering a country where most U.S. internet companies had failed to crack the code and with the product that needed rebuilding,” he said.
Uber and Didi, which have been bitter rivals, will see their fate become firmly intertwined with the deal. Mr. Kalanick will join Didi’s board, while Didi founder Cheng Wei will join Uber’s board as part of the deal. After the merger, Uber will own 17.7% of Didi, with other existing investors in UberChina, including Chinese search giant Baidu Inc., taking another 2.3% of Didi.
In a joint statement, Mr. Cheng and Jean Liu, Didi’s president, called UberChina a “great competitor” in an “epic battle” for the fast-growing ride-hailing business in China.
Uber’s foray into private ride-hailing services in China began before Didi, which was founded in 2012, added that feature to its taxi-hailing business. UberChina has spent more than $1 billion over the past three years trying to gain traction, by offering subsidies to both drivers and riders. An analysis by consultancy BDA China Ltd. showed that UberChina and Didi both paid about 5 yuan a ride in subsidies, split between driver and passenger.
“We all knew the subsidies were clearly unsustainable,” said Duncan Clark, a longtime China tech consultant who runs the Beijing-based BDA. “The subsidies cost Uber and they couldn’t have gone public with that black hole.”
The deal comes after China last week released nationwide guidelines to legalize ride-hailing services. China’s new industry regulations, which will go into effect in November, forbid the running of ride-hailing services below cost.
It is unclear whether the deal, creating a single dominant company in the ride-hailing industry, will face scrutiny from Chinese authorities. Didi said UberChina will be kept as an independent brand and operation, but that all data will be owned by Didi.
Investors welcomed the deal, saying the long fight in China held the companies back from profiting in the short term.
“This makes sense for both companies,” said Andrew Teoh, managing partner of Ameba Capital, an early investor in Didi, noting the deal follows the same logic that led to other mergers among Chinese tech startups in recent years.
Didi has been a formidable fundraising machine, refusing to back down as Uber poured billions in subsidies into China. Didi raised $7.3 billion in its latest fundraising round in June, which included a $1 billion investment from deep-pocketed Apple. For Didi, Uber’s global reach could help the Chinese firm grow its business overseas.
When Uber announced a partnership with Ant Financial’s Alipay mobile payment system earlier this year, it propelled Alipay into 69 countries; previously it was only in a handful of markets. Research firm Analysys International said Didi had 42.1 million active users in May, while UberChina had 10.1 million.
After the merger, Didi will count all three of China’s biggest technology companies as shareholders—online shopping Alibaba Group Holding Ltd. , gaming-to-social leader Tencent Holdings Ltd. and Baidu.
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