(Beijing) – After years of intense battles to crack the Chinese market, car-hailing giant Uber surrendered to its homegrown rival, Didi Chuxing by offering to sell its regional operations, but the deal still needs approval from anti-trust regulators.
The Ministry of Commerce, one of the country's anti-trust regulators, said August 2, the merger "can't proceed if they don't apply for permission."
Didi announced August 1 that Uber Technologies Inc. has agreed to take a 5.9 percent stake in the new entity and Didi's founder Cheng Wei and Uber Chief Executive Officer Travis Kalanick will join each other's boards.
The mega deal would create a juggernaut valued at US$ 35 billion, according to people with knowledge of the matter.
According to China's Anti-Trust Law, companies need approval from the commerce ministry to merge if their combined global revenue exceeded 10 billion yuan or domestic earnings were over 2 billion yuan in the last fiscal year, and at least two entities involved in the deal made 400 million yuan together in China.
In response to a Caixin query, Didi said August 1 that both Didi and Uber China have not turned a profit in the country so they don't need to apply for permission. But that was a day prior to the commerce ministry's announcement that it will probe the proposed union.
While privately-owned Didi and Uber China have never disclosed their financial reports, the two companies' total revenues "probably surpassed 2 billion yuan," wrote Chen Yongwei, a market researcher at Peking University, in a commentary published on Caixin's Chinese website.
Chen estimated that Didi's sales last year have surpassed 400 million yuan, so whether the deal would need to be cleared by the commerce ministry depends on Uber China's yields, he said.
A key factor that can decide whether the merger would violate anti-trust laws is how regulators define the industry, experts said.
In the recent document that legalized the car-hailing industry in China, regulators classify ride-sharing firms as "Internet-booked taxies" providing "differentiated" services.
If regulators adopt a narrow interpretation and define the industry as limited to Internet-driven firms catering to transportation needs, "it seems all but certain that the merged entity will monopolize the market," Chen said.
But regulators could also view the Didi-Uber entity as another player in the larger taxi industry, said Fu Weigang, executive president of Shanghai Institute of Finance and Law. "The difference is that traditional taxi companies are limited to one city, while Uber can operate across the country."
"If authorities consider the merger as a normal cab company, then from this perspective, the combined entity doesn't have a big share of the (taxi) industry," Fu said, and therefore the deal will not be scuttled by anti-trust regulators.
In the first three months of this year, Didi received more than 85 percent of all online car-booking orders, followed by Uber China and two other domestic players, Yidao Yongche and Shenzhou Zhuanche, according to Internet information provider CNIT Research.
Chen, however, said the merger would not create a monopoly because it would not push up entry barriers making it harder for newcomers to compete. "There are so many programmers out there who can design car-hailing apps," said Chen, "the industry is still an accessible market."
Yidao Yongche, a small ride-sharing platform backed by search company Baidu Inc., said in a statement on August 1 that the Didi-Uber merger did not mean competition in the industry will be snubbed out and that Yidao will continue its "fight."
（from Caixin Online)
