Govt. of China passed a law regarding ride-hailing services by paving the way for further development of these businesses. As a result, Uber Technologies recently announced that it would unite the China business with Didi Chuxing which is China’s ride hailing service. Uber is regarded as one of the most successful startups worldwide. It serves as a role model for many other startups. It has a reach over 16 countries that include 5 continents. On the other hand, Didi Chuxing was earlier known as Didi Kuaidi which was a merger of Didi Dache and Kuaidi Dache.
Let’s decode the deal in detail:
Didi Chuxing and Uber both are cab aggregators and were running business in China independently but as per the sources, they both were yet to make profits in China.
The main investors in Uber China Baidu and San Francisco-based Uber are entitled to get approx 20% of equity in the combined company. The breakup is as following: Uberglobal will get 5.89% with ‘prefered equity interest’ which equals to 17.7% stake in the joint venture. Other local shareholders including Baidu are entitled to receive 2.3% stake in Didi Chuxing.
“I have no doubt that Uber China and Didi Chuxing will be stronger together. That’s why I’m so excited about our future, both in China—a country which has been incredibly open to innovation in our industry—and the rest of the world, where ridesharing is increasingly becoming a credible alternative to car ownership.”
As far as the top management is concerned, founder of Didi, Cheng Wei, will be on the board of Uber and Travis kalanick would join the board of Didi.
As per a source from Uber, “this deal would be beneficial for both Uber China and Didi because there was a fierce competition going on between both the companies and none was able to churn profits. The competition was so fierce that the startup giant incurred a loss of over $2 billion in just two years in China in order to stay ahead in the business.
President of Didi Jean Liu said that Didi is extremely happy with this collaboration as Uber was its biggest competitor but now together they can create new milestones in the business.
Uber did the same thing as yahoo did back in 2005 when it sold its businesses in China to Alibaba Group Holding Ltd. in $1 billion.
Looking at the bigger picture, I must say that Uber has taken the right decisions in past and because of those decisions, Uber is what it is today. In China, The U.S Startup was continuously making losses but now both the startups will reap the benefits. I wish both the startups good luck in their journey and for a long lasting relationship.
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