Uber burns too much money in China, investors call for peace with Didi

Investors in ride-hailing service Uber have a message for management: It’s time to end its money-burning war of attrition in China.

Bloomberg News cited sources as saying that several institutional investors are pushing Uber to sign a cooperation agreement with Didi Chuxing, the leader in China's ride-hailing market. Uber is willing to invest billions of dollars to expand its market share in China, and investors intend to prevent Uber from implementing this plan.

The sources also said that while Uber and Didi executives need to hold "truce" talks, investors of the two companies are already discussing a potential deal.

An Uber investor said he had held more than 10 meetings and phone calls with Didi shareholders who were interested in a peace deal, but he declined to discuss the specific identities of the investors.

Uber and Didi are spending billions of dollars to dominate the world's most populous market. Uber said it spends at least $1 billion a year to expand in China. Both companies are offering incentives to consumers and drivers as they fight for market share.

According to sources, Uber investor and company director Bill Gurley, a partner at Benchmark, had a brief exchange with Didi President Jean Liu at the Code Conference in Rancho Palos Verdes a few months ago.

Liu Qing speaks fluent English and has traveled to the United States several times to promote the company and meet with several investors, including Apple.

Liu also met with Uber Senior Vice President Emil Michael this year, one of the sources said. The source declined to say whether the meeting included specifics of an agreement or collaboration.

Another source familiar with the matter said the two companies have not yet discussed a deal.

Bargaining chips

As both companies are willing to maintain their independence, executives at both Uber and Didi are concerned that showing openness to a deal could weaken their bargaining chips. Didi is currently the leader in its home market in China, with 14 million drivers and operations in 400 cities across the country. Uber plans to expand its business in China to 100 cities this year.

Uber set up a separate corporate entity for its Chinese business and attracted local Chinese investors, but as the parent company, Uber still invested in it, and the two companies are inextricably linked financially.

Among unlisted technology companies, Uber and Didi are heavyweight competitors. Uber's latest valuation has reached nearly $68 billion, and it says it currently holds more than $11 billion in cash and convertible bonds. Didi's latest valuation is $28 billion, and it says it has $10 billion in cash and convertible bonds.

Raising cash in this way, at least in a sense, shows that both parties intend to continue the money-burning game in the Chinese market. Many investors believe that Uber and Didi are playing the chicken game, continuing to burn money and waiting for their competitors to bow their heads and admit defeat or return to the negotiation table.

Business seems to be better outside of China. Uber says it is profitable in the United States and Canada. However, the company's profits in developed countries are offset by losses in developing countries.

How to divide the cake

Sources said that a potential obstacle to reaching a cooperation agreement is how to divide the pie. Didi wants a larger share than Uber is willing to give. Investors have suggested that Uber's subsidiary in China be taken over by Didi, while Uber becomes a minority shareholder in Didi.

An Uber spokesman declined to comment. Didi and its public relations firm Brunswick did not respond to multiple emailed requests for comment.

Didi is no stranger to the model of cooperating with peers. It has formed an international alliance with Lyft in the United States, Ola in India, and Grab in Southeast Asia.

Lyft is Uber's main competitor in the United States. Didi has invested $100 million in Lyft, which further complicates the potential negotiation between the two companies. Sources said last month that Lyft has hired Qatalyst Partners investment bank to seek potential equity acquirers for it.

Pressure from investors

Even if company founders initially express reluctance to merger deals, a series of recent cases in the Chinese market have provided precedents for investors to achieve this goal.

Due to pressure from shareholders such as Alibaba and Tencent, Didi merged with its former competitor Kuaidi in 2015 to form China's largest taxi service provider. Last year, Ctrip and Qunar, two rivals in the online travel industry, also got married under the matchmaking of capital.

Uber has raised $15 billion in funding so far, with investors including venture capital firms, hedge funds and sovereign wealth funds. As Uber CEO Travis Kalanick said that he could wait long enough for the IPO, shareholders’ investment was locked indefinitely.

According to sources, in addition to regulatory issues, another important aspect in promoting Uber's initial public offering (IPO) is to stop losses in the Chinese market. At its current valuation, Uber is not only one of the best among unlisted startups, but also higher than 85% of the companies in the S&P 500 index.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.