Two Chinese taxi-hailing apps Kuaidi Dache and Didi Dache are said to be in advanced talks to get together. What's so special about this couple? The reason they are in the news is they are backed by archrivals Alibaba (BABA) and Tencent Holdings (TCEHY), respectively. And being niche players, they have picked up a few loyal customers.
According to the Wall Street Journal, this would create a dominant ride-hailing leader in China. The combined company would be valued at around $6 billion. However, this would require the support of their primary investors.
Before the Courtship
Recently, both Didi Dache and Kuaidi Dache carried out fundraising rounds with investments of more than $1 billion pouring in for the two taxi-hailing apps. In a round led by Japanese Internet and telecom services company SoftBank Corp, Kuaidi Dache raised about $600 million last month. On the other hand, in December, Didi Dache said it had raised more than $700 million from investors including Tencent and Russian investment firm DST Global.
Points of Attraction
These two rivals have been locked in a grueling battle, overindulging on campaigns to attract drivers and passengers. Joining forces would be mutually beneficial, given their operations in different regions in China.
If this deal goes through, it would be a typical example of rivals coming together to eliminate competition and realize synergies.
It would also strengthen their position versus the American taxi hailing service Uber, which recently announced plans to expand its operations in China. In December, leading Chinese search engine Baidu (BIDU) revealed that it would invest in Uber, though the companies did not provide further details. Uber now operates in nine Chinese cities.
Any coalition would, however, have to take care of some very important questions such as the payment system the merged taxi-hailing company is going to use. At present, Didi Dache users pay via Tencent’s mobile-payment system, while Kuaidi Dache users pay via Alibaba’s Alipay system.
One solution could be that the new merged company accepts both payment systems.
Last Word
China’s taxi-hailing app space is growing and has a lot of potential. Robin Li, CEO of Baidu, said in December that "a lot of startups — and big companies like Baidu, Alibaba and Tencent — all want to achieve something in this industry."
If the deal takes place, it will surely change the face of this industry in China. For now, we can only speculate on the impact on the industry when two of the leading companies and rivals come together? Will the industry be altered for good? And who will benefit the most — the passengers or these companies? Only time will tell.
Alibaba currently holds a Zacks Rank #3 (Hold). Investors can also consider PetMed Express, Inc. (PETS) as it holds a Zacks Rank #1 (Strong Buy).
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