Find out more at btsub.sg/btdeal
You are here
Uber-Didi's Chinese mega deal expected to breeze past regulators
[HONG KONG] An alliance between the top two players in an industry often piques an antitrust watchdog's scrutiny. Less so with the Chinese mega-merger between the two largest on- demand ride services on the planet, Uber Technologies Inc and local champion Didi Chuxing.
Didi's decision to buy out Uber's Chinese operation creates a US$35 billion ride-sharing juggernaut holding sway over almost 90 percent of the market. Yet the odds are slim that the commerce ministry or other agencies will nix such a high-profile deal involving a bona-fide national champion, legal and industry experts say.
Helping the chances of a deal sailing through is the struggle by China to come to grips with a regulatory framework for the sharing economy, an industry with which it has little experience.
While Uber and Didi have operated in the country for years, it was only last month that the government said they would make them legal. Regulators are also likely to provide a generous classification of the company's market: though it reigns supreme in ride-sharing, it's only one of scores of players in the nation's transport system.
"It requires a very complicated and professional process to determine monopoly status. Revenue and market share figures usually do not show the full picture," said Huang Yong, a senior member of an anti-monopoly board of experts advising the State Council, China's cabinet.
"In Didi's case, the regulators will need to draw a clear boundary of the market car-hailing apps are operating in, which will require loads of sophisticated research."
The Ministry of Commerce's Anti-monopoly Bureau is the primary body for assessing the antitrust impact of deals but other national bodies can get involved. Ministry spokesman Shen Danyang told reporters Aug 2 that the merger "cannot move on" if Uber and Didi fail to file a formal application, while stopping short of saying it will investigate.
Approval from the anti-monopoly bureau for a deal is typically needed for companies with more than 400 million yuan (S$81 million) in annual revenue each and more than 2 billion yuan in combined sales.
A formal review could then take months. But if ministry regulators accept that Didi's reported revenue falls under those thresholds, the anti-monopoly bureau can simply let the deal through.
Didi may not meet that threshold because it only takes a cut of the money that flows through its platform from ride-sharing, and has avoided charging commissions on taxi hailing in its push to lure drivers and users.
Didi and Uber China are also said to be loss-making, because of a massive outlay in subsidies.
What also helps is that regulators have traditionally emphasised the policing of sensitive state-owned enterprises with millions of workers such as banks and steelmakers, rather than fast-evolving web businesses, said Richard Lim, managing director of GSR Ventures. An example was when the government handed out wireless licenses to rival carriers to curtail China Mobile Ltd's dominance of fourth-generation services.
A spate of recent technology-industry mergers have passed without incident: Meituan and Dianping were able to combine in group buying and food, while Ganji.com and 58.com Inc got together in the classified ads business.
"The antitrust in China tends to be focused on big traditional industries," said Mr Lim, an early backer of Didi.
"In China, the anti-monopoly regulators are not very focused on technology." If a merger goes ahead, government bodies are expected to keep a close eye on Didi with the ride-hailing service expected to gradually do away with subsidies once aimed at grabbing market share. Taxi companies - many backed by local governments - have railed against the company's rapid expansion, saying it threatens their drivers' livelihoods.
Yet few significant moves are made in China without first checking in with influential government bodies and garnering their tacit approval. Given the millions of users that could be affected, Didi is likely to have sounded out senior officials.
As an additional deterrent to an investigation, the top post in the ministry's anti-monopoly bureau has remained vacant since January.
"Competition is very much alive in the market after the merger," said Dong Xu, a researcher from Analysys. Given the speed with which the industry is evolving, even relative minnows like Yidao, backed by Chinese internet giant LeEco, or publicly-traded Ucar could grow their market share over time, she said.
They "are all prepped up to grab market share from those who lower subsidies."