China's Didi Chuxing ride-sharing service is acquiring Uber's Chinese operations for a 20 percent stake in the Chinese company, as Uber gives up on trying to battle the company after losing more than $2 billion there in the last two years.
The acquisition of the assets of Uber China was announced by Didi Chuxing on Aug. 1 as a "landmark transaction [that] signals a new stage in the development of China's rideshare industry." The deal includes Uber China's branded business operations and its operational and customer data throughout mainland China.
Uber will receive 5.89 percent of the combined company with preferred equity interest, which is equal to a 17.7 percent economic interest in Didi Chuxing, according to the deal. Another 2.3 percent economic interest will be received by Baidu and other Chinese shareholders under the deal, while Didi Chuxing will also obtain a minority equity interest in Uber.
Cheng Wei, the founder and chairman of Didi Chuxing, will join the board of Uber while Travis Kalanick, the CEO and co-founder of Uber, will join the board of Didi Chuxing, the companies announced.
Uber China will keep its independent branding and business operations following the deal to help "ensure stability and continuity of service for passengers and drivers," the companies said. Didi Chuxing will meanwhile "integrate the managerial and technological experience and expertise of the two teams, to meet China's ever richer transportation demands."
The China ride-sharing marketplace has been volatile in the last several years. In May, Apple unveiled its own $1 billion investment in DiDi Chuxing, just before Apple CEO Tim Cook headed to China for talks with leaders there. The move was interesting due to its timing, according to an earlier eWEEK story. Apple's investment came just after government regulators in China without warning shut down Apple's online iBooks Store and iTunes Movies service, which had opened six months before, leaving the company working with the Communist government to try to restart the services. The shuttering of the Apple services occurred despite permission that Apple previously received from the Chinese government when the services began there last year.
"Didi Chuxing and Uber have learned a great deal from each other over the past two years in China's burgeoning new economy," Cheng Wei, founder and CEO of Didi Chuxing, said in a statement. "As a technology leader deeply rooted in China, Didi Chuxing is constantly pushing the frontier of innovation to redefine the future of human mobility. This agreement with Uber will set the mobile transportation industry on a healthier, more sustainable path of growth at a higher level."
With the deal in place, the company "commits all our energy to work with regulators, users and partners to meet the transportation, environmental and employment challenges of our cities," Wei said.
The Uber China acquisition will help Didi Chuxing better serve its more than 15 million drivers and 300 million registered users, Jean Liu, president of Didi Chuxing, said in a statement. "With the addition of the strong talents and experience of the Uber China team, Didi Chuxing will be even better-positioned to serve the Chinese people. Didi Chuxing will also continue to expand its international strategy. We look forward to working with our partners at home and abroad to create more value for drivers, passengers and communities."
In an Aug. 1 post on the Uber Website, CEO Kalanick wrote that his company's merger with Didi Chuxing comes three years after he traveled to China to look at the idea of launching Uber operations in the country.
"It was an ambitious idea, given that we were still a relatively small start-up and no one there had ever heard of the company," he wrote. "Most of the people we asked for advice thought we were naive, crazy—or both."
UberChina grew quickly and exceeded 150 million trips per month, but the operation still wasn't profitable, he wrote.
"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."
Kalanick said he believes that "Uber China and Didi Chuxing will be stronger together," under the merger. "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 ride-sharing is increasingly becoming a credible alternative to car ownership."