After two years and billions spent trying to gain a solid foothold in the region, Uber conceded victory to rival Didi Chuxing in a deal to sell their China operations to the company for $7 billion. The payment is not in cash, but rather stock in Didi. With the deal, Didi is now valued at $35 billion.
Formed from a 2015 merger between Didi Dache and Kuaidi Dache, Didi Chuxing dominates the Chinese market, claiming to hold 87% of the private car market and 99% of the taxi-hailing sector. The combined company is backed by tech giants Alibaba (BABA - Free Report) and Tencent (TCEHY - Free Report) . Furthermore, Apple Inc. (AAPL - Free Report) invested $1 billion in the company back in May in a move that we discussed here.
Leading up to the deal, Uber had been noticeably lagging behind Didi. Uber had operations in 45 cities, while Didi operated in over 400. As our team highlighted some time back, Uber also faces competition in other regions. India’s Ola and U.S.-based Lyft are a few of many headaches for the company, but with this latest move they can allocate more time and resources towards expanding their reach in other parts of the world and compete with these companies.
The deal also indicates that Uber shareholders will gain a 20 percent stake in Didi, while Didi will also invest $1 billion into Uber’s global operations.
A potential Uber IPO has made for plenty of conversation recently. The company is now estimated to value at around $68 billion, and entices many investors through its startling momentum since its inception just six years ago. Tech IPOs have been scarce thus far in 2016, with Twilio, the cloud services company, (TWLO - Free Report) surging since its IPO, while messaging service Line Co. (LN - Free Report) has continually traded downward.
Many believe that in moving past the headache that competition in China had become, an Uber IPO could be on the horizon as it would no longer serve as a liability. China has been notoriously difficult for foreign companies to penetrate due to stringent regulations. Apple, the poster child for success in the region, has also faced increased competition from domestic competitors such as Huawei and Xiaomi.
Although in the short term this stings a bit, it seems that focusing on other growth opportunities will serve to benefit Uber in the future.
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