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Uber China drives new deal with rival Didi

So if you can’t beat them, join them – that may be the reason why Uber is selling its China operations to bigger local rival Didi Chuxing in a deal that will give Uber a one-fifth stake in Didi.

No financial details were released. The deal combines Didi’s US$28 billion valuation with Uber’s US$7 billion market capitalisation for its Chinese segment, according to the Chinese business magazine Caixin.

The San Francisco-based company will receive a 5.89% stake in Didi – but will have disproportionate “economic interests” of 17.7% with another 2.3% interest going to Uber China shareholders.

Speculation about the merger had been swirling for weeks. The two firms have been fierce competitors, but Didi Chuxing dominates the Chinese market with an 87% share.

The decision comes just after new government regulations were announced last week to legalise ride-hailing apps in China.

Uber China launched in 2014 but has failed to make any profit so far, this deal may be Uber’s best available option on the table.

Cheng Wei, founder and chief executive of Didi Chuxing, said the two companies had “learned a great deal from each other over the past two years in China’s burgeoning new economy”.

He added that the deal would “set the mobile transportation industry on a healthier, more sustainable path of growth at a higher level”.

Uber will continue to operate independently, the Didi posting said.

Uber’s CEO Travis Kalanick said on his Facebook page: “Didi has been a fierce competitor and I respect all that Didi and their team have accomplished.”

Didi raised US$7.3 billion from investors in what it described as one of the world’s largest private equity funding rounds.

That included US$1 billion from Apple, which became a strategic investor alongside Tencent and Alibaba.

Forrester’s senior analyst Xiaofeng Wang said: “Investors of both Didi Chuxing and Uber are keen to put an end to the cash-burning competition in China, and the sooner they turn profitable, the better,”

“Before Uber, Didi’s oversea partners are mainly second-tier players. Didi can now leverage Uber’s global presence to help Didi better navigate the international market.”

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