On Monday, Uber announced that its operation in China will be sold to its competitor Didi Chuxing. The deal, which will create a company worth roughly $35 billion, has been largely seen as a truce in China’s burgeoning ride-hailing industry. Both companies have spent billions of dollars to capture market share, and combining them will end such spending sprees, as well as make the industry as a whole much less competitive. In return, the New York Times reports that Uber’s investors will receive a 20 percent stake in the new company. Didi Chuxing will also invest $1 billion in Uber’s international operations.
UberChina is only three years old, but it has failed to gain ground against Didi Chuxing. The Chinese company, which has been operating since 2012 and merged with another competitor, Kuaidi Dache, last year, is valued at $25 billion. The company has powerful backers—including Apple, Alibaba, Tencent Holdings, and China Life Insurance—and recently raised another $3.5 billion from its investors.
Another reason the two companies might have chosen to end the ride-hailing battle is the announcement of the Chinese’s government’s new guidelines, which reportedly will go into effect November 1. Those rules legalize ride-hailing apps but, among other things, mandate the elimination of “below cost” pricing, which will take away a main tool the two companies have been using to compete with each other.