Uber to merge China business with Didi

Uber Technologies Inc will merge its China business with Didi Chuxing, the dominant ride-hailing service in the country, according to people familiar with the matter.

The valuation of the combined ride-hailing company is US$35 billion, the people said. Investors in Uber China, an entity owned by San Francisco-based Uber, Baidu Inc and others, will receive a 20 percent stake in the combined company, the people said. Uber will continue to operate its own app in China for now.

Didi is making a US$1 billion investment in Uber at a US$68 billion valuation, people familiar with the matter said. Uber declined to comment, and Didi didn’t immediately respond to a request for comment.

"As an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your heart,” Travis Kalanick, chief executive officer of Uber, wrote in a blog post obtained by Bloomberg. “Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there. Getting to profitability is the only way to build a sustainable business that can best serve Chinese riders, drivers and cities over the long term.”

The Chinese government passed a new rule last week that legalized ride-hailing services, paving the way for further expansion of these businesses.

Uber’s investors had been clamoring for the company to sell off its China assets. Both Uber and Didi have been spending significantly to compete in China. Uber has lost more than US$2 billion in the country, people familiar with the matter said. In the first half of 2015, Uber was profitable in developed markets, the people said.

In China, Uber ventured where few US technology companies have succeeded. In 2005, Yahoo! Inc made a similar deal, selling its businesses in China to Alibaba Group Holding Ltd, along with a US$1 billion investment– one of the internet company’s best bets.

While Uber will walk away from operations in China, it is taking a significant stake in its largest competitor there. By shedding its massive losses in China, Uber will help clear the path for an eventual initial public offering.

(BLOOMBERG)