Uber back­ers said to push for Didi truce in costly China busi­ness

The Pak Banker - - COMPANIES/BOSS -

Uber Tech­nolo­gies Inc. in­vestors have a mes­sage for man­age­ment: It's time to wrap up the costly fight in China.

Sev­eral in­sti­tu­tional in­vestors are push­ing the ride-hail­ing com­pany to ink a part­ner­ship agree­ment with China's mar­ket leader Didi Chux­ing, ac­cord­ing to peo­ple fa­mil­iar with the mat­ter, stem­ming the bil­lions of dol­lars Uber is spend­ing to ex­pand in the re­gion.

In­vestors in Uber and Didi have dis­cussed a po­ten­tial deal, though the com­pa­nies' own ex­ec­u­tives would need to ne­go­ti­ate any truce, the peo­ple said, ask­ing not to be iden­ti­fied as the dis­cus­sions aren't pub­lic. One Uber in­vestor said he's had more than 10 meet­ings and calls with Didi share­hold­ers that want the com­pa­nies to cut a deal. He de­clined to dis­cuss the iden­tity of the in­vestors.

Uber and Didi are bleed­ing cash in China as they fight for dom­i­nance in the world's most pop­u­lous coun­try. Uber has said that it is spend­ing at least $1 bil­lion a year to ex­pand its busi­ness in the coun­try. Both are giv­ing out in­cen­tives for driv­ers and free rides to com­pete for mar­ket share.

Bench­mark's Bill Gur­ley -- an Uber in­vestor and board mem­ber -- spoke briefly with Didi Pres­i­dent Jean Liu at the Code Con­fer­ence in Ran­cho Pa­los Verdes, Cal­i­for­nia, a few months ago, ac­cord­ing to a per­son fa­mil­iar with the mat­ter. Liu, who speaks flu­ent English un­like Didi Chief Ex­ec­u­tive Of­fi­cer Cheng Wei, has made sev­eral trips to the U.S., where she evan­ge­lizes for the com­pany and meets with back­ers in­clud­ing Ap­ple Inc.

She also met this year with Emil Michael, Uber's se­nior vice pres­i­dent of busi­ness, another per­son said. The peo­ple de­clined to dis­cuss whether the con­ver­sa­tions in­cluded ex­plicit talk of a deal or part­ner­ship. The two com­pa­nies are not cur­rently dis­cussing a deal, a sep­a­rate per­son fa­mil­iar with the mat­ter said.

With both com­pa­nies as­sert­ing their in­tent to grow in­de­pen­dently, ex­ec­u­tives at Uber and Didi are con­cerned that ap­pear­ing open to a deal could un­der­cut their ne­go­ti­at­ing lever­age with each other, the peo­ple said. Didi is in the lead on its home turf, with 14 mil­lion driv­ers signed up in 400 Chi­nese cities. Uber has set a tar­get of op­er­at­ing in 100 cities this year.

Uber set up a sep­a­rate cor­po­rate en­tity to in­su­late its Chi­nese busi­ness, which has gath­ered lo­cal Chi­nese in­vestors. Still, the par­ent com­pany has also in­vested its own money, keep­ing the units fi­nan­cially in­ter­twined. Among pri­vate tech­nol­ogy com­pa­nies, the ri­vals are gi­ants. Uber, which was last val­ued at nearly $68 bil­lion, says it has ac­cess to more than $11 bil­lion in cash and eq­uity. Didi, which was last val­ued at $28 bil­lion, says it has more than $10 bil­lion at its dis­posal in cash and eq­uity.

That cash has been ac­cu­mu­lated, at least in part, in an at­tempt to sig­nal a will­ing­ness to con­tinue spend­ing in China. Many in­vestors be­lieve Uber and Didi are play­ing a game of chicken -- burning cash and wait­ing for their com­peti­tor to con­cede de­feat or come to the ta­ble.

Out­side of China, busi­ness is far­ing better. Uber has said that it is prof­itable in the U.S. and Canada. But its prof­its in the de­vel­oped world are be­ing off­set by losses in de­vel­op­ing mar­kets.

One po­ten­tial road­block to a part­ner­ship agree­ment is how fees would be split, ac­cord­ing to one of the peo­ple. Didi would want more of the com­bined rev­enue share than Uber would be will­ing to give up, the per­son said. In­vestors have also pro­posed that Uber China be ab­sorbed by Didi, with Uber be­com­ing a mi­nor­ity share­holder in the Chi­nese com­pany, another per­son said.

A rep­re­sen­ta­tive for Uber de­clined to com­ment. Didi Chux­ing said in an e-mailed state­ment it "does not have such plans" and would not com­ment fur­ther.

Didi's no stranger to part­ner­ing with peers. The com­pany has al­ready formed a global coali­tion with Lyft Inc. in the U.S., In­dia's Ola and South­east Asia's Grab.

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