Uber is reversing out of a dead end in China. The San Francisco-based ride-hailing app is handing its China business to local rival Didi Chuxing. In exchange, Uber and its investors get 20 per cent of the merged entity, which is valued by media reports at $35 billion. It is a humiliating reversal after a high-profile battle against the larger Didi. The combined group can now cut back on subsidies and focus on profit.
This is a sudden retreat. Just eight months ago, Uber boss Travis Kalanick said the company was "in China for the long-term". The China unit had just raised more than $1.2 billion at a valuation of more than $8 billion, including new money.
It also adds to the long list of US giants who are either restricted in China - like Facebook and Google - or who have been sent packing by local rivals - like eBay, or Wal-Mart, which recently backed out of online groceries.
Uber's strategy was to use cash from US operations to fund expansion in the Chinese market, which is dominated by Didi. Both sides have spent billions of dollars subsidising drivers and passengers in a bitter price war.
But Didi has far outmatched Uber on its home turf. The Chinese group, itself a product of a 2015 merger, claims roughly seven-eighths of the country's private car-hailing market, and a $10.5 billion war chest. It also recently won a $1 billion endorsement from Apple.
The combined stakes in Didi are worth 12.5 per cent less than Uber China's previous valuation. But even that haircut looks generous given the business has yet to turn a profit and is a long way behind by market share. Local investors, including search engine giant Baidu and travel conglomerate HNA, may prefer the new setup to backing a group that loses more than $1 billion a year in a subsidy war.
Moreover, Uber and its backers will at least share in the value created through the merger. That should be substantial, given the drop-off in competition, and since another newcomer would struggle to challenge Didi now. Uber is no longer in the driving seat but has steered its way out of trouble.
This is a sudden retreat. Just eight months ago, Uber boss Travis Kalanick said the company was "in China for the long-term". The China unit had just raised more than $1.2 billion at a valuation of more than $8 billion, including new money.
It also adds to the long list of US giants who are either restricted in China - like Facebook and Google - or who have been sent packing by local rivals - like eBay, or Wal-Mart, which recently backed out of online groceries.
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But Didi has far outmatched Uber on its home turf. The Chinese group, itself a product of a 2015 merger, claims roughly seven-eighths of the country's private car-hailing market, and a $10.5 billion war chest. It also recently won a $1 billion endorsement from Apple.
The combined stakes in Didi are worth 12.5 per cent less than Uber China's previous valuation. But even that haircut looks generous given the business has yet to turn a profit and is a long way behind by market share. Local investors, including search engine giant Baidu and travel conglomerate HNA, may prefer the new setup to backing a group that loses more than $1 billion a year in a subsidy war.
Moreover, Uber and its backers will at least share in the value created through the merger. That should be substantial, given the drop-off in competition, and since another newcomer would struggle to challenge Didi now. Uber is no longer in the driving seat but has steered its way out of trouble.