Uber had been spending hugely in China over the past two years, but now it appears that they have folded and struck a deal in which it will merge with its main Chinese rival, Didi Chuxing.
The news was first reported by Bloomberg early in the morning and the transaction has been confirmed. There has been no comment from either of the parties, yet. This means that there is some truth to this report.
Under terms of the deal, Uber China, will be part of a larger Didi company now valued at $35 billion. Uber will get a 20 percent stake in that — Didi was previously valued at $28 billion.
Uber had funneled in $2 billion and now its stake has increased to $7 billion (one of the smartest moves ever). In turn, Didi will invest in Uber that is valued close to $70 billion. Everyone seems to have invested in everyone. Wonderful! Didi and Uber have now become the center of a major investment cycle involving US and China.
Didi has investments from China behemoth Alibaba and Tencent. It also has a partnership with Uber’s U.S. rival Lyft, as well as with Grab of Indonesia, which is another Uber competitor. Apple has recently made an investment in Didi and GM made one in Lyft. Basically, everyone has invested in Uber, including Baidu.
To put it simply, Uber knows when to fold. After being engaged in an incredibly expensive ride war with Didi there, they did just that. It got quite dirty between the two, as they accused each other of fraud and what not. The price war just one little bit. Uber CEO Travis Kalanick admitted in his blog that it was futile.
He wrote about being passionate and successful. This can only if one can follow the head and the heart. Profitability is the only way to sustain a business. This war between the two companies has cost them a lot of money and neither of them has made a single penny of profit, yet.
Upon retrospect, this deal is a win-win for both the companies. The entire gameplay of startups depends on valuations. The deal has made that happen. Now, since these companies are so big that no one can buy them. However, with one less worry of competing, they can start focussing on making money directly from the business.
Cutting down on the massive losses in China will make way for a grand IPO that expected to be out in 2017.
