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Uber Selling China Unit to Rival Tencent and Alibaba Platform (Report)

The Chinese business activities of car hailing application Uber are to be sold to Didi Chunxing, China’s market leader in the sector. The deal is expected to be formally announced on Monday.

The enlarged company is reported to have a valuation of $35 billion. Uber China’s owners will hold approximately 20%. Simultaneously, Didi Chunxing will invest $1 billion in the Uber global company, which is given a $68 billion valuation.

The mega-merger should finally dispel any international doubt about the scale, ambition and sophistication of China’s leading digital companies. Didi Chunxing was formed last year from the merger of Didi Dache and Kuaidi Dache, China’s two largest firms in the sector, respectively backed by Tencent and Alibaba. Other investors in Didi Chunxing included Japan’s SoftBank and Apple, which provided $1 billion.

Alibaba – with the help of SoftBank — and Tencent have both diversified from their respective core areas to become leading players in entertainment in China. Both have shown international ambitions and strategies that suggest further digital integration across previously disconnected sectors.

Car hailing has operated in a somewhat gray area of the law in China. But, unlike many other industry sectors, it was one in which a major foreign player was allowed to operate relatively freely. Despite pouring billions into China Uber’s share of the market was modest. Many estimates suggest that Didi Chunxing had 87% of the market. Other figures put it higher.

The takeover comes less than a week after Chinese regulators gave formal approval to the car hailing industry. Significantly, Uber’s business model which poses a technological threat to the taxi trade is the opposite of that used by Didi Chunxing. Its platform is used as an intermediary between taxi drivers and passengers.

Copies of an announcement purportedly written by Uber CEO Travis Kalanick and expected to be posted on his personal blog today have circulated widely in Chinese media and have been carried by specialist financial media:

“We’ve grown super fast and are now doing more than 150 million trips a month. This is no small feat given that most U.S. technology companies struggle to crack the code there. That’s why I’m so proud of what our amazing China team has accomplished.

However, as an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your heart. Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there. 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.

I have no doubt that Uber China and Didi Chuxing will be stronger together. That’s why I’m so excited about our future, both in China — a country which has been incredibly open to innovation in our industry — and the rest of the world, where ridesharing is increasingly becoming a credible alternative to car ownership.”

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