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Alibaba to merge its China food-delivery units to beat the competition

It is up against Tencent-backed Meituan Dianping in China's on-demand services market

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A food delivery-service rider from Ele.me (in blue, right) goes up against Meituan rivals (in yellow) in the race for hungry-but-busy customers in this office building in Beijing.

Hong Kong

ALIBABA Group plans to merge its food-delivery units and raise funds for the combined business, intensifying a battle with Tencent-backed Meituan Dianping for dominance of China's booming on-demand services market, four people told Reuters.

The Alibaba units to be merged include food delivery platform Ele.me and food-and-lifestyle services firm Koubei, the people said.

Alibaba is looking to raise between US$3 billion and US$5 billion for the combined entity, said one of the sources. The entity could be valued at up to US$25 billion, said another.

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A Hong Kong-based Alibaba task force is working on the merger and raising funds for the combined entity, according to two of the people.

Alibaba's units and Meituan, backed by social media and gaming giant Tencent Holdings, are fighting for supremacy in China's buoyant online-to-offline (O2O) market, where apps link smartphone users with bricks-and-mortar businesses to provide local food delivery and other offerings.

Mo Jia, a Shanghai-based research analyst with technology consultancy Canalys, said: "Alibaba and Meituan are the two main companies that can offer comprehensive O2O services.

"Alibaba's three units are complementary to each other and it makes strategic logic to merge them into one platform to compete with Meituan."

One of the people said the fund-raising was expected to launch later this year. The person said the new unit would also include Alibaba's Hema Fresh, a chain of cashless supermarkets offering fresh produce and food delivery.

All the people declined to be named as the information is confidential.

Alibaba, which also handles media queries for Koubei and Hema, declined comment. A spokesman for Ele.me denied the merger and fund-raising plan.

The value of O2O transactions in China jumped 72 per cent last year to US$146 billion, said Chinese research firm Analysys.

According to a June report by Chinese research firm iiMedia Research, Ele.me and Baidu Waimai, which Ele.me acquired a year ago, held a combined 55 per cent of China's food-delivery market in the first quarter, compared with Meituan's 41 per cent.

China's biggest ride-hailing firm Didi Chuxing also entered the fray in April, launching its own food-delivery service. Meituan Dianping is expected to raise more than US$4 billion when it floats in Hong Kong in the coming months.

Last year, the company was valued at US$30 billion in a fundraising round. In April, Alibaba bought the shares it did not already own in Ele.me in an all-cash deal that valued the startup at US$9.5 billion.

The e-commerce giant and its financial affiliate Ant Financial Services Group previously owned a 43 per cent stake in the business, whose name roughly translates to "Hungry?".

Koubei, founded in 2015 as a 50-50 joint venture of Alibaba and Ant Financial, had a valuation of US$8 billion at the end of 2017, according to a list of unicorns published by a unit under China's Ministry of Science & Technology in March. Silver Lake, CDH Investments, Yunfeng Capital and Primavera Capital joined as investors in a January 2017 funding round.

Ant Financial declined comment. There are no publicly available numbers for Hema, which was founded two years ago under Alibaba's retail push. It now operates more than 60 supermarkets in 13 cities in China, said its website. REUTERS