Meituan Dianping IPO demands a nemesis discount

[HONG KONG] Meituan Dianping's initial public offering (IPO) demands a nemesis discount. The fast-growing Chinese food reviews and delivery unicorn plans to start taking some US$4 billion of orders for shares this week. Since it kicked off its listing process in June, Alibaba has intensified the rivalry. Considering that Jack Ma's e-commerce titan used to be a Meituan investor, bad blood should be factored into the valuation.

Founder Wang Xing's sprawling outfit has some firepower behind it, too. Chinese internet giant Tencent is a backer. Meituan's approximately 300 million monthly users helped nearly triple sales last year to about US$5 billion. Although it is unprofitable, operating losses shrank by 40 per cent to some US$550 million. Last valued at US$30 billion, the IPO could vault it to as much as US$55 billion, Reuters reported.

The biggest attraction amid the company's many ventures is Meituan Waimai, its on-demand delivery business, which accounts for about 60 per cent of sales. The trouble is that Alibaba, which offloaded its stake in Meituan after it merged with a Tencent-backed rival in 2015, wants a bigger piece of the action.

It took full control of the Ele.me takeout business in April before uniting it last month with Koubei, a Yelp-like review affiliate, to create a one-stop food shop similar to Meituan Dianping's. What's more, Alibaba brought in the formidable Japanese company SoftBank to participate in a more than US$3 billion fundraising for the enlarged group. Finally, it just started 88 VIP, a programme that generously awards customers for using multiple services across the Alibaba empire, including Ele.me.

During a discussion of Alibaba's latest results in August, chief financial officer Maggie Wu described on-demand delivery as "a must-win and a must-have" market. That portends a brutal battle of cash-burning subsidies that could last a good long while. Meanwhile, Meituan is going up against Didi Chuxing in ride-sharing, bought bike-sharing startup Mobike and runs an Airbnb-like home rental service, too. That makes the idea of funding a company with a deep-pocketed arch-enemy girding for a toe-to-toe brawl that much more worrisome.

CONTEXT NEWS

Chinese online-services company Meituan Dianping has set an indicative price range of HK$60 to HK$72 a share for its initial public offering in Hong Kong, valuing it at up to US$55 billion, Reuters reported on Sept 1, citing unnamed sources.

The company, which is backed by Internet giant Tencent, could raise as much as US$4 billion before factoring in the sale of any extra shares by underwriters in a so-called overallotment option, according to the report.

Meituan Dianping - which offers food delivery, restaurant reservations, ride-hailing and other services through a single app - plans to raise US$1.5 billion of the proceeds from five cornerstone investors, including US$400 million from Tencent, Reuters reported. The four others are asset manager OppenheimerFunds, UK-based hedge fund Lansdowne Partners, US hedge fund Darsana Master Fund and Chinese state-owned conglomerate China Chengtong.

Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley are sponsors of the IPO. China Renaissance is the financial adviser.

REUTERS