Uber China To Merge With Didi To Create A $35 Billion Company

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Uber Technologies Inc. will sell its China business to Didi Chuxing, the dominant ride-hailing service in the country, reports Bloomberg. The deal ends a costly battle between the two companies, which competed for customers and drivers.

The valuation of the combined business will be $35 billion. Investors in Uber China, an entity owned by San Francisco-based Uber, Baidu Inc. and others, will receive a 20% stake in Didi and Uber will continue to operate its own app in China for now.

In addition to Uber selling its Chinese subsidiary, the complex deal involves Didi making a $1 billion investment in Uber. Both sides declined to comment.

Last year, China’s ride-hailing leaders Didi and Kuaidi joined forces. The merged company Didi Chuxing brought together backers Alibaba Group Holding Ltd. and Tencent Holdings Ltd., the country’s most valuable internet businesses. Apple Inc. joined in this year with a $1 billion investment in Didi. Uber simply could not compete with the power house.

Both Uber and Didi have been spending significantly to compete in China. Uber has lost more than $2 billion in the country.

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. Neither Uber or Didi has turned a profit in China.

The purchase of Uber’s China business may complicate Didi’s alliance with other ride-hailing startups around the world. Didi had agreed to work with the US’s Lyft Inc., India’s Ola and Southeast Asia’s Grab to create a global force to take on Uber.

 The impending deal is a victory for Didi and underscores how the ride-hailing business favors domestic players.

While Uber will walk away from operations in China, it is taking a significant stake in the largest player in China. By recovering from its massive losses in China, the move will potentially help Uber clear the path for an eventual IPO. This deal shows that sometimes if you can’t beat them, it’s better to join them.

A version of this appeared in Bloomberg on August 1. Read the full version here.