Chinese ride-sharing leader Didi Chuxing's big-name investors have to be pleased with the company's deal to merge its operations with global leader Uber's Chinese unit UberChina. Companies in other Chinese Internet markets seeing fierce competition between its leaders might also have reasons to be encouraged.
Didi, valued at $28 billion in a recent funding round and now handling over 14 million daily rides, will be giving Uber a 17.7% stake in exchange for UberChina's assets, and Baidu (BIDU) and other Chinese Uber shareholders a 2.3% stake. Didi will also get a minority stake in Uber proper of undisclosed size -- Bloomberg reports Didi is investing $1 billion in Uber, and Re/code reports Didi's investment values Uber at nearly $70 billion -- and each company's founder will join the other's board.
Though UberChina "will maintain independent branding and business operations," Didi can take a victory lap. In exchange for a 20% stake and a reported $1 billion investment, Didi obtains a near-monopoly position in a Chinese ride-sharing market that -- given the country's size, urban density, rapidly-growing middle class and relatively low car ownership rates -- stands to be enormous. It also ends a very costly battle with UberChina -- sources tell Bloomberg Uber has lost $2 billion in the Middle Kingdom over the last two years -- and adds Uber and Baidu to its partner list.
It's a safe bet that if Didi was publicly traded, its shares would be flying higher in response to this deal. That, in turn, would be a positive for Apple (AAPL) , Alibaba (BABA) and Tencent, each of which have stakes in the company. Apple, widely reported to have an electric-car project code named Titan, poured $1 billion into Didi through the company's most recent funding round. Apple CEO Tim Cook has said the deal will help it "learn a lot about the business and the Chinese market even beyond what we currently know."
Uber's shares would also probably be jumping, had the company's long-anticipated IPO occurred by now. The deal puts an end to the huge losses Uber had been racking up in China, and frees up resources to go after non-Chinese rivals such as Lyft (the U.S.), Gett (Europe and to some extent the U.S.), Ola (India) and GrabTaxi (Southeast Asia). The Financial Times just reported Uber is set to invest $500 million in its internal mapping efforts.
Other potential winners: Chinese Internet companies open to merging with a major rival. The Didi-Uber deal, together with other recent transactions, suggests Chinese regulators are willing to sign off on deals between top players in markets seeing intense price competition and/or heavy promotional spending. Last year, Chinese online classifieds leader 58.com bought a 43% stake in top rival Ganji.com, and Chinese online travel leader Ctrip became leading rival Qunar's top shareholder through a deal with Baidu. And a merger occurred between Meituan and Dianping, the biggest players in China's group deals market.Both the 58.com/Ganji and Ctrip/Qunar deals were well-received by markets. That fact probably isn't lost on Chinese Internet companies either. Could a deal happen between online auto leaders Bitauto (BITA) and Autohome (ATHM) ? How about one between online real estate leaders SouFun (SFUN) and Leju (LEJU) ? A lot of possibilities exist.