Uber Sells China Operations to Didi Chuxing

Global ride-hailing giant Uber Technologies Inc. has given up its costly battle for China’s riders, swapping its local operations there for a minority stake in the country’s homegrown champion, Didi Chuxing Technology Co.

Didi, said Monday that Uber and investors in its UberChina unit will take a 20% stake in the company. Combined with Uber’s China business that was valued at around $8 billion, Didi will have a valuation of around $36 billion.

After the merger, Uber will become the largest shareholder in Didi. The Chinese ride-hailing company will also invest $1 billion in Uber as part of the deal, a person familiar with the matter said.

The deal marks an end to Uber’s efforts to establish an independent foothold in China, which began in 2013 and was considered a rare case of a U.S. tech firm making inroads in the local market.

This merger “frees up a substantial resources for bold initiatives focused on the future of cities—from self-driving technology to the future of food and logistics.” Uber Chief Executive Travis Kalanick said in a prepared statement. Operating in China “is only possible with profitability.”

Mr. Kalanick will join Didi’s board, while Didi founder Cheng Wei will join Uber’s board as part of the deal. After the merger, Uber will own 17.7% of Didi, with other existing investors in UberChina, including Chinese search giant Baidu Inc., taking another 2.3% of Didi.

The deal comes after China last week released nationwide guidelines to legalize ride-hailing services. China’s new industry regulations, which will go into effect in November, forbid the running of ride-hailing services below cost.

Didi has been a formidable fundraising machine, refusing to back down as Uber poured billions in subsidies into China. Didi raised $7.3 billion in its latest fundraising round in June, which included a $1 billion investment from deep-pocketed Apple. For Didi, Uber’s global reach could help the Chinese firm grow its business overseas. When Uber announced a partnership with Ant Financial’s Alipay mobile payment system earlier this year, it propelled Alipay into 69 countries; previously it was only in a handful of markets. Research firm Analysys International said Didi had 42.1 million active users in May, while UberChina had 10.1 million.

After the merger, Didi will count all three of China’s biggest technology companies as shareholders—online shopping Alibaba Group Holding Ltd., gaming-to-social leader Tencent Holdings Ltd. and Baidu. – WSJ

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