Merger talks between Grab and Gojek off the table

Jakarta/Singapore

AFTER lengthy negotiations, the proposed merger between two of South-east Asia's decacorns is said to be off the table, sources in Jakarta told The Business Times.

Indonesia-based Gojek and Singapore-based Grab, the region's two largest ride-hailing firms, have ended their attempt to merge.

News of a possible merger first surfaced in early 2020 and created a huge buzz among the tech and investment communities.

According to a well-placed source, the two sides have not been able to see eye-to-eye on a number of issues including valuation and corporate cultures. The possible merger also created a public backlash in Indonesia, particularly from motorcycle riders who feared loss of income as many of them serve both firms.

"The merger will require one main shareholder to bring the two sides together and that is not on the table at the moment," said Hadi Cahyadi, founder and managing partner of Helios Capital. He said Gojek's growth strategy may not gel with Grab's overall regional strategy.

He added that according to market talk, Gojek is also planning for an initial public offering (IPO) in the United States and Indonesia later this year. "If that is the target, they will not merge."

Tension over who the bigger Indonesia player was likely impeded merger talks, market watchers told BT last month.

Some were convinced of Grab's dominance in a potential acquisition, though others believed Gojek would not easily relinquish control.

"Gojek is a long way behind Grab (regionally) but not in a position where it needs to give up," tech analyst Angus Mackintosh said then. He noted the value of Facebook and PayPal as new strategic investors in Gojek's financial services arm, GoPay.

The discontinuation of talks between the two firms now opens up a possible merger between Gojek and e-commerce platform Tokopedia, which financial analysts see as being more complementary.

It is believed that the merged entity would be valued at US$18 billion and would allow both sides to expand their market reach.

"The Tokopedia-Gojek merger would be fantastic from the perspective of creating a large digital bank in Indonesia," said Arwin Rasyid, founder and chairman of TEZ Capital and Finance. "Such banks are either created by e-commerce platforms or by super apps that have large numbers of users."

Gojek made a substantial purchase of shares in publicly listed Bank Jago last December for 2.25 trillion rupiah (S$225 million) as part of its long-term investment plan and to strengthen GoPay.

"The acquisition of Bank Jago will support the Gojek ecosystem and also increase Gojek's valuation," said Mr Rasyid. "It makes sense for them to merge."

Still, the merged entity will continue to face tough competition from Grab and Sea, which owns e-commerce player Shopee. Gojek and Tokopedia would need to quickly devise a cohesive post-merger strategy to take these contenders on, observers said.

The operational difficulties in ride-hailing and on-demand delivery is unlikely to ease anytime soon, either.

Gojek's head-to-head fight with Grab in Indonesia has caused substantial cash bleed, which was believed to have motivated the firms' investors to push for a truce in the first place.

All eyes are now on Grab's next move to strengthen its position before a public listing. Media reports said that Grab - reportedly last valued at US$16 billion - is eyeing a US IPO that could raise at least US$2 billion.

The company's president Ming Maa said last month that group revenues have returned to well over 100 per cent of pre-Covid levels. Grab had cash reserves of around US$5.3 billion as at Jan 20, according to a Moody's report.

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