
Uber to Sell China Business to Rival Didi After Losing Billions - igonvalue
http://www.bloomberg.com/news/articles/2016-08-01/uber-said-to-merge-china-business-with-didi-in-35-billion-deal
======
sudoscript
I can't tell if this is a good deal for Uber investors or not. As I understand
it, Uber will own a 20% share in the combined company. The combined company is
valued at $35 billion, so Uber's share of the value will be $7 billion
(actually less, since they also need to share it with Baidu which invested
directly into Uber China too). $7 billion doesn't sound too bad as an exit.

However, if Uber's China business is worth only $7 billion, and their current
valuation is $68 billion, does that mean the rest of the world is worth 9x
China, even though China is one of their largest and highest potential market?
Suddenly the valuation of Uber's business outside China looks very inflated
(even more than before). Doesn't it?

~~~
johnloeber
Uber's China business was losing money before (I believe to the tune of about
$1bn/year), and it looked like they weren't going to get a permanent hold in
that market. Local competition was very strong.

Consequently, I would conjecture that China was never a large part of Uber's
valuation. Leaving it at slightly more than 10% of their valuation seems
reasonably realistic to me. Keep in mind:

* The major Chinese cities generally have very developed and efficient systems of mass public transit, reducing demand for rideshares (and cars in general)

* While China is a large country, not everyone can afford an automobile or a rideshare service. There are many reasons why scooters are so popular in SE Asia; this is one of them.

~~~
lziest
As a Chinese national, I disagree. Taxi experience in big cities in China is
generally better because of heavier regulation and competition. In many medium
to small cities, it is far worse. Now note Uber only compete in big cities
while Didi has already been operating in many smaller cities with large market
share. Yet Uber still fails to expand to where ride hailing by app should be
popular and desirable.

Scooters? Everyone hates them.

Personal experience: my hometown is a medium city (with a population of ~3
million in urban area), the taxi system there is so broken. Because of the
medallion system, to maximize the profit/cost ratio, taxi drivers usually
operate their cars 24 hours a day with two shifts. Day shifts are usually
taken by locals, and they will try their best not to serve you if the trip
goes through traffic-jammed area or remote places. I understand their economic
reasoning though. The worst part is every afternoon from 4pm to 6pm, when
shift change happens, every taxi driver will refuse your ride request unless
you happen to be ride sharing with them to their shift change stops(pretty
ironic I think). So as a rider you basically beg for a ride.

That's how Uber/Didi win. You don't beg, you don't worry, you don't get pissed
off. You uses an app then you get on a car with better fare (thanks to those
steep discounts)

Remember, this is just one city with population of 3MM, there are more than
100 of such cities (with population of 1~3 million) in China. But Uber is not
operating in my hometown, let alone many others.

Uber is slow to adopt Alipay or Wechat pay. Uber is slow in expansion.

~~~
evanrich87
Slow to adopt WeChat is incorrect. WeChat blocked Uber from the app because
Tenecent is one of Didi's largest investors:
[http://venturebeat.com/2015/08/24/ubers-wechat-drama-
exposes...](http://venturebeat.com/2015/08/24/ubers-wechat-drama-exposes-the-
unique-challenges-of-winning-in-china/)

~~~
callalex
Crap like this is EXACTLY why trusting mass communications to one company
instead of an interconnected system is a terrible idea.

------
piyushpr134
Merge is such a cute word. "Uber lost China and had to sell to Didi" is more
like it

~~~
kenbaylor
Or Uber invested $2bn and walked out with $7bn. Not a bad deal. Plus the value
of the combined entity will skyrocket.

~~~
techolic
Not exactly, Uber doesn't own all of the $7bn.

~~~
JoachimSchipper
7bn is 20% of the 35bn.

~~~
a_small_island
Uber does not own all 20%, from the article:

"Investors in Uber China, an entity owned by San Francisco-based Uber, Baidu
Inc. and others, will receive a 20 percent stake in Didi, the people said. "

------
snaky
Jean Liu, the president of Didi, is the daughter of Chinese businessman and
Lenovo founder Liu Chuanzhi, and the granddaughter of Liu Gushu, a senior
executive banker at the Bank of China.

Travis Kalanick is not.

~~~
kesselvon
Hard to compete when the government interferes in favor of your competitor.
Many western companies investing or competing in China don't realize how
stacked the cards are against them. Either you're left with a very tiny share
of the market, or your joint Chinese partners are going to plunder your IP and
start undercutting your business.

~~~
marme
people dont understand how much this was happening to uber. Police were
actively stop uber drivers and fining them for operating as illegal taxi while
not stoping any didi kuaidi drivers. In some cities they even had uber banned
by the local government with threats of arrest for anyone who drove for uber
in the city while allowing didi kuaidi to operate. There has been so much kick
back and inside dealing by didi kuaidi that uber never had a chance

------
Animats
Back in 2014, Didi and Kuaidi, the other big ride-hailing service in China,
had a price war. This forced 20 smaller ride-hailing companies out of
business. In 2015, Didi and Kuaidi merged.[1] They managed to escape antitrust
review by claiming their revenue was below the $65 million threshold for
antitrust reporting in China. With their price war, they were both losing
money, so the deal was not subjected to antitrust review by the Ministry of
Commerce. Unclear if the Uber deal will get through the same loophole. Anyway,
Uber exits from China, with a minor stake in Kuaidi. Now Kuaidi can jack up
prices.

[1]
[http://www.americanbar.org/content/dam/aba/publishing/antitr...](http://www.americanbar.org/content/dam/aba/publishing/antitrust_source/oct15_sobel_10_19f.authcheckdam.pdf)

~~~
zhte415
You can order taxi on Didi and pay on cash on a metered fare; surge pricing is
not possible.

For me, it is a convenience app to hail a taxi, nothing more nor less. Taxis
in China are very inexpensive.

For ride shares, also pay outside the app, having hailed via it one-time.
Driver is happy to have a regular ride-share.

And frankly, I'm happy to pay taxi-rate fares, that again are nothing in
comparison to North American or European rates, for the convenience.

------
erdevs
Well played by Didi. This was a years-long chess game with enormous stakes and
Didi came out winning. Make no mistake, Uber's goal was absolutely to dominate
in China, if they could. That was a big part of their pitch to investors over
the past two years. This deal is an admission of defeat and a retreat from
competition, salvaging what value they could in the process.

I would imagine this speaks to mounting pressure on Uber to begin producing
real profits. If so, expect many changes in the coming year+ as the company's
unit economics (outside its usurious car leases) are clearly still abysmal in
almost all markets.

~~~
flylib
this is bad news for Lyft who Didi basically just abandoned after partnering
with them and were hoping that Uber would self implode by overspending in
China, Uber has got the US market on lock

[https://techcrunch.com/2016/04/11/lyft-and-didi-kuaidi-
launc...](https://techcrunch.com/2016/04/11/lyft-and-didi-kuaidi-launching-
cross-platform-service-this-week-in-u-s/)

~~~
pfarnsworth
Maybe Lyft already knew this, which is why they have been trying to sell
themselves.

~~~
ipince
? Why do you claim they're trying to sell themselves?

~~~
mahyarm
lmgtfy: [http://www.vanityfair.com/news/2016/06/is-lyft-headed-
toward...](http://www.vanityfair.com/news/2016/06/is-lyft-headed-toward-a-
sale)

------
paradite
The articled linked has changed the title to: "Uber to Sell China Business to
Rival Didi After Losing Billions"

This is a more accurate title being used by major news media:

"Uber sells Chinese business to Didi Chuxing" \-
[http://www.bbc.com/news/36938812](http://www.bbc.com/news/36938812)

"Didi Chuxing to Buy Uber’s China Operations" \-
[http://www.wsj.com/articles/china-s-didi-chuxing-to-
acquire-...](http://www.wsj.com/articles/china-s-didi-chuxing-to-acquire-
rival-uber-s-chinese-operations-1470024403)

It is also being used in Didi's official Weibo (in Chinese):
[http://weibo.com/2838754010/E1ykp4eJn?refer_flag=1001030101_...](http://weibo.com/2838754010/E1ykp4eJn?refer_flag=1001030101_&type=comment#_rnd1470045164071)

~~~
eva1984
For non-Chinese audience, this is from Didi's official Weibo account:

"滴滴出行宣布收购优步中国，融合资源，促进中国移动出行行业更健康发展。"

"Didi Chuxing announces the acquisition of Uber China, (for) integration of
resources and facilitating Chinese mobile transportation business for
healthier development."

Edit: typo

------
0x80000000
For people living in Beijing, this is really a bad news.

Didi and Uber China have been in fierce competition for quite a long time,
both of them gave consumers HUGE discount. For example, Uber is showing me a
promotion which I can go as far as 5 KM around at the cost of just 5 RMB
(0.75$).

After merging, I'm afraid we won't see such a low price anymore.

~~~
puranjay
Yeah there is no way they can sustain these prices in the long term.

Here in India, because of the price war between Ola and Uber, you can travel
for as low as $0.04/km - cheaper than even the cheapest mode of transport
(rickshaws).

------
schappim
"Didi is making a $1 billion investment in Uber at a $68 billion valuation,
people familiar with the matter said."

So that's where Apple's $1 billion in Didi[1] just went!

[1] [http://www.reuters.com/article/us-apple-china-
idUSKCN0Y404W](http://www.reuters.com/article/us-apple-china-idUSKCN0Y404W)

~~~
known
Insider trading?

------
sethbannon
Uber finally threw up the white flag in its fight against Didi in China. I
wonder how big of a dent this puts in Uber's sheen of invincibility in other
markets. Will investors be braver backing other regional competitors like Ola
in India and Lyft in the US?

~~~
ravivyas
China is a whole different market. Nothing can be extrapolated from China.
Amazon lost in China, but is doing well in India.

~~~
adventured
And of course infamously Google and Facebook dominate most of the planet, but
can't compete in China (and Baidu can't manage to do much outside of China).

~~~
seanmcdirmid
Its even worse than that: Myanmar, Cambodia, Vietnam, ... most of China's
neighbors who are just getting into the internet now...are strictly
Facebook/Google territory, Chinese internet companies can't even compete in
their backyard.

~~~
taobility
Are u kidding? Those Chinese private companies are not charity. For the
countries you mentioned, Myanmar, Cambodia, Vietnam, their market is too
small, their population's income is too low, compared with the investment. Why
would they care about them? Meanwhile, did you hear Chinese cellphone, mobile
games are so popular in Vietnam and India?

~~~
seanmcdirmid
You are probably right. Western companies think long term, not about profit
today but profit tomorrow. Chinese software companies don't have that luxury
of longer term thinking given the environment they are in.

------
bing_dai
Interesting fact: Uber China's Senior VP (Liu Zhen) and Didi's President (Liu
Qing, or Jean Liu) are cousins.

~~~
dingdongding
This is what is fishy. Probably merger had to happen.

------
Bogdanovich
From bbc.com:

"The deal with Didi Chuxing comes just days after China agreed to provide a
legal framework for taxi-ordering apps. Both Uber and Didi have welcomed the
decision, having previously operated in a legal grey area in the country.
While the apps are widely popular, they have undermined business for normal
taxis and have been met with protests by cab drivers. The new rules will take
effect on 1 November and will, among other things, forbid such platforms to
operate below cost."

New regulation prohibits ride subsidizing. Meaning no way for Uber to increase
its market share by subsidizing rides after November 1st.

~~~
snaky
Wait for _suddenly and unexpectedly_ these regulations will be pulled off
after the deal.

~~~
jpatokal
Why would Didi need to subsidize to below cost if they don't have Uber to
compete against? They already have a 87% market share.

~~~
Bogdanovich
This regulation was probably a good reason for uber to sell its business as it
protects didi's market share

------
msvan
Is there no antitrust law in China? Surely the optimal solution to two big
corporations hemorrhaging money in competition for consumers is not that they
stop competing, but rather that they cut costs. Or is such a scenario simply
not possible in the dog-eat-dog tech world?

~~~
mbesto
> antitrust law in China

Ok, seriously?

[https://en.wikipedia.org/wiki/List_of_largest_Chinese_compan...](https://en.wikipedia.org/wiki/List_of_largest_Chinese_companies)

~~~
germanier
So this list means that there is no antitrust law in the US? Because I count
twice as many American as Chinese companies on that.

[https://en.wikipedia.org/wiki/List_of_largest_companies_by_r...](https://en.wikipedia.org/wiki/List_of_largest_companies_by_revenue)

Fact is, China has monopoly and merger control laws.

~~~
a_small_island
I think mbesto's list was supposed to highlight the fact that a large number
of China's top companies are state owned.

~~~
mbesto
Exactly, sorry to the parent if that wasn't obvious. When you have state
controlled entities (and very large ones in energy, utilities, etc), then the
idea of antitrust laws is laughable.

------
erikpukinskis
> “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.”

Hm. This makes me wonder if their strategy for doing that is price fixing. The
merger lets them do that legally.

Are there any other serious players in the market in China?

~~~
Eutow
>The deal with Didi Chuxing comes just days after China agreed to provide a
legal framework for taxi-ordering apps. Both Uber and Didi have welcomed the
decision, having previously operated in a legal grey area in the country.
While the apps are widely popular, they have undermined business for normal
taxis and have been met with protests by cab drivers. The new rules will take
effect on 1 November and will, among other things, forbid such platforms to
operate below cost.

[http://www.bbc.com/news/36938812](http://www.bbc.com/news/36938812)

~~~
chw9e
Perfect excuse for Didi to raise prices after gaining monopoly share of the
market...

------
bogomipz
I realize this is a complex deal with many nuances but do elements of all of
this not sound a little bit like a ponzi scheme? At least outwardly? Didi
which itself has lost billions dollars so far has agreed to invest a billion
dollars into another company who has lost billions of dollars. I guess
investors are that confident that Uber can not and will not fail?

~~~
harryh
In order for it to be a ponzi scheme the money being invested in Uber would
need to be used to directly pay off previous investors. That is not happening.
Investing in Uber may or may not turn out to be a good investment, but it's
not a Ponzi scheme.

~~~
bogomipz
There is now money that can be taken off the table. You don't think investors
are going to get any of that?

~~~
harryh
Shareholders selling stock to other investors is not the same thing as money
owned by the company being used to pay off previous investors.

------
nordsieck
Seems like a risky move. My understanding is that China doesn't have the same
level of minority shareholder protections as Delaware. I suppose it's better
than bleeding for the next 10 years and ultimately losing the market, though.

------
ameyamk
This is pure monopoly play - I hope Lyft continues to compete and do not merge
... I hate to be in world where no taxi service exists and I am at the mercy
of random surge pricing...

------
fuzionmonkey
Didi and Uber have been raising outrageous amounts of money to outspend each
other on driver incentives. Seems like a smart deal for both sides.

------
ryanjodonnell
Uber was never going to win as a foreign tech company in China. Good thing
they are doing this, at least they get a piece of the pie the only way you can
in China - as an investor.

------
praveenster
Strange, since a couple months ago Didi, Lyft and Ola (Indian incumbent)
launched a collaborative service …

[https://techcrunch.com/2016/04/11/lyft-and-didi-kuaidi-
launc...](https://techcrunch.com/2016/04/11/lyft-and-didi-kuaidi-launching-
cross-platform-service-this-week-in-u-s/)

[https://techcrunch.com/2015/12/03/lyft-didi-ola-and-
grabtaxi...](https://techcrunch.com/2015/12/03/lyft-didi-ola-and-grabtaxi-
partner-in-global-tech-service-alliance-to-rival-uber/)

~~~
rahimnathwani
The Didi/Lyft collaborative service doesn't work in China. Didi customers can
visit the US and order Lyft rides. But Lyft customers visiting China cannot
use the Lyft app to order Didi rides.

------
DavidWanjiru
>chief executive of Uber wrote in a blogpost obtained by Bloomberg.

You mean obtained it, like it isn't available to the general public or
something? Did they let you make a copy or was it FYEO?

~~~
shimon_e
Available only on the exclusive internet.

------
xbeta
So much for "disruption" in startup ideology, but I guess it is China that
starts bring them back to reality. This is China, nothing is fair even you
optimistically believe it to be.

I'm not sure what's the fantasy on China. I'd personally prefer winning the 6b
population markets over the 1.3b.

Sure, it takes time, but in a long run it is more sustainable. But obviously
in a startup world, a sustainable business without the hyper-growth is not
much valued.

------
free2rhyme214
Kudos to Uber. They did better than Google.

~~~
chvid
Exactly - had Google had a local partner they probably still would have access
to the Chinese market.

------
perseusprime11
It is interesting to note the Apple investment in Didi just a few months back.
Did that in any way play a role in this merger? I think this is a good outcome
given the consideration that Uber, an american company cannot own something as
fundamental as transportation in China. The government plays too much of a
role to let Uber or for that matter any other foreign company. Listen to Trump
on this one!

------
jddanforth
How did Uber get 17.7% of Didi (88% of Uber China shares) if they didn't own
more than 50% of Uber China to begin with? Also, it was reported that Uber got
17% of economic interest, but only 5.89% of full equity? I assume the rest of
the 17% was non-voting shares?

------
ww520
Looks like it's a case of two rivals trying to outspend each other and one has
been outspent.

------
mathattack
If you can't beat 'em, join 'em. I think uber's playbook of encouraging local
activism to overcome govt and incumbent resistant wouldn't work there.
Converting Didi into a partner is a big win for them.

------
spacehunt
China just legalized ridesharing under a new regulatory framework...
coincidence?

------
curiousDog
Next up, gobbling up Lyft. Looks like they really want to be the monopoly at
IPO time. At this rate, they'll probably IPO at more than $100 billion. Sigh,
should've interviewed with them last year, haha

~~~
yladiz
It's extremely unlikely that they'll IPO for anywhere near $100 billion, or
even near their current valuation (for reference, the largest IPO in history
is Alibaba with $25B). Their accounting practices most likely don't utilize
GAAP, which is how they get around saying "we're profitable in the US", so I
wouldn't be surprised if they were actually significantly losing money. Plus
with the multitude of lawsuits against them right now, it's not hard to
imagine they lose a good chunk of their valuation in the near future if the
lawsuits don't really favor them.

They may IPO (if they are indeed profitable and don't want to keep looking for
Series N style fundraising), although I doubt it, and if they did, it's
definitely unlikely to be anywhere near $100 billion.

~~~
menzoic
> the largest IPO in history is Alibaba with $25B

Facebook's IPO was much larger at $104B

~~~
aneesh
Different metrics. Alibaba _raised_ $25B. Facebook's market cap was around
$104B (intraday) upon their IPO, but they only raised about $16B in the
offering.

------
imikay
Actually it‘s more a buyout than a merge according to Chinese news.

------
jeffcaijf
no competition will hurt consumers :(

~~~
mc32
Depends, at least they'll be viable entities, rather than ones which were
unsustainable (a money losing operation does not stay in business for the long
term).

------
gesman
>> As an entrepreneur, I’ve learned that being successful is about listening
to your head as well as following your heart...

This is well said.

------
tluyben2
I hope that the Uber app will be working still after this in Shanghai as for
foreigners Uber is usable; Didi not really.

------
ghshephard
As long as anywhere in the world, I can get out of the airport, open up my
Uber App, and summon an Uber - I'm happy.

~~~
mabcat
Don't fly to Sydney then! I don't know what devil-deal was done, but the app
won't allow you to summon an UberX inside the airport boundaries.

~~~
cstejerean
Can you get an uber black? UberX is not allowed to pick up at airports in some
markets, but I'll settle for Uber black over having to deal with taxis.

~~~
nnd
There are a lot of cities where any Uber is available outside of airport only.

------
free2rhyme214
And then Lyft mergers with Uber.

I wouldn't be surprised.

~~~
detailyang
2333333333333333:)

------
whack
I really hope China adopts some kind of anti-trust regulation sometime soon.
This trend of all competitors merging until only one monopolist is left
standing, can't be good for their consumers, nor the economy.

~~~
msoad
heh! This is the result of the new policy Chinese government put in place that
prohibits ride sharing companies from subsidizing rides to gain market share.
It pretty much forced Uber to get out of China! I don't think Chinese
government care about anti-trust as long as the monopoly company is from the
gang that runs the country.

------
sandGorgon
im not completely sure about this - but it seems that the people who run Didi
and Uber in China are cousins ([http://www.wsj.com/articles/inside-ubers-
fight-with-its-chin...](http://www.wsj.com/articles/inside-ubers-fight-with-
its-chinese-nemesis-didi-kuaidi-1441234010)) - and are both linked to the
powerful Lenovo family.

China is a huge, closed economy .. where doing business in the country means
buying into powerful business families. Money stays within the family!

------
rajacombinator
There's going to be a lot of money vaporized in this 2p2 taxi business ...

