Apple partner Didi Chuxing to buy Uber China for $1 billion

AppleInsider

Didi Chuxing, the Chinese ride sharing service that Apple invested $1 billion into, appears to be buying out rival service Uber China for $1 billion plus a promise to invest $1 billion into parent company Uber Global.

Didi will acquire not just the business, but the customer list and branding in China as part of the terms of the deal. Uber Technologies and Uber China shareholders will be granted a 20 percent share in the combined company.

Uber head Travis Kalanick will join the Didi Chuxing board of directors, and Didi founder Cheng Wei will join the Uber board.

Uber had been spending $1 billion per year on its China branch. In February, before Apple's investment, Didi was seeking $1 billion in investments to fight off the growing threat from Uber in the Chinese marketplace.

Apple's May investment, along with similar contributions to the company from internet giant Tencent and Alibaba, into the ridesharing company pushed the company's valuation over $28 billion. Didi Chuxing's valuation after this deal is estimated to be $35 billion, according to Bloomberg, making Uber's share of the combined company worth about $7 billion.

Didi offers more than just ride sharing facilitation in China. Other services available through Didi include taxi hailing, private car hiring, and a designated driver service.

In an interview following the Apple investment, Didi Chuxing president Jean Liu claimed that the company had a one percent penetration of a population making one billion commutes a day. "We actually share a huge overlap in customer base," Liu said about the deal with Apple. "Our driver base, our passengers, they use Apple and iPhone a lot, iPad, I think it's very intuitive."

When Apple announced its investment in Didi, Apple Chief Executive Tim Cook claimed that it was done "for a number of strategic reasons," and was "a chance to learn more about certain segments of the China market." Cook added later, during a tour of the Didi headquarters, that Didi had an "environmental" objective, to cut pollution and traffic in China.

The deal has yet to be approved by the Chinese Ministry of Commerce. As part of the deal, Didi Chuxing will also make a $1 billion investment in Uber Global, in addition to the $1 billion for the China buyout, according to the New York Times.

maestro64

Not sure what Didi was thinking to let Uber have 20% ownership for a business in China which was not going well and most likely would not have turned around anytime in the future.

SpamSandwich

So now Apple by default is partial owner of Uber.

levi

maestro64 said:

Not sure what Didi was thinking to let Uber have 20% ownership for a business in China which was not going well and most likely would not have turned around anytime in the future.

I suspect it matches (or close to) Uber's current market share. Uber wasn't going to leave unless they received something worthwhile. Current losses be damned. Both were happy to hold on for the promise of big future returns. Now they'll get there together faster. 

Templeton

Brilliant.

cjcampbell

Didi Cha-ching!

SpamSandwich

levi said:

maestro64 said:

Not sure what Didi was thinking to let Uber have 20% ownership for a business in China which was not going well and most likely would not have turned around anytime in the future.

I suspect it matches (or close to) Uber's current market share. Uber wasn't going to leave unless they received something worthwhile. Current losses be damned. Both were happy to hold on for the promise of big future returns. Now they'll get there together faster. 

This kind of collusion in China would never fly in the US. Good for Apple in this case.

emoeller

It is essentially a stock swap of 20% ($7B valuation) with a back end investment by Didi in Uber ($1B), resulting in a deal value of about $8B (which is essentially what Uber had invested in Uber China - so for them a wash).  See this WSJ article http://on.wsj.com/2aHTpt9

Didi is going to be the "Amazon" of services in China, handling everything from rides, package and services (food, groceries, medical and health) deliveries.

This was a smart move by both Uber and Didi (both were losing money) and a good move for Apple's recent investment.

In the end though the cards are stacked against any foreign company doing business in China.  Their "capitalist" system is designed to allow companies in to learn from their strategies and tactics, then home grow competitors with strong national backing (both investments through China National Fund and through regulatory control).  Thus creating Chinese monopoly clones of successful foreign businesses.  

Apple is seeing this now in their declining share of the Chinese smartphone market, as Chinese companies create successful clones.   Eventually one of these companies will rise to the level of a Samsung (essentially Korea's version of a monopoly) and that will be the end of Apple's cell phone business in China.  

lkrupp

So in the future when you call for an Uber ride a self-driving Apple Car shows up to take you where you want to go. I think we now know what the “next big thing” is going to be, and it isn’t VR.

cali

Does Goog get any of this?

gatorguy

cali said:

Does Goog get any of this?

Any of what? I think Google Ventures is still an Uber investor if that's what you were asking. I doubt any of the money is being given to the investors tho. But perhaps you meant something else? 

crowley

This seems like Uber got the much better end of the deal; a nice pay off for a business that wasn't doing well, and a chunk of investment for their other ventures. What did Didi get?  Eliminated a competitor who they were already beating, some assets that weren't making any money, and a brand that doesn't mean all that much in China.

Still, monopoly status is probably worth a fair amount in itself; I just don't like to see Uber doing well.

emoeller

sog35 said:

emoeller said:

It is essentially a stock swap of 20% ($7B valuation) with a back end investment by Didi in Uber ($1B), resulting in a deal value of about $8B (which is essentially what Uber had invested in Uber China - so for them a wash).  See this WSJ article http://on.wsj.com/2aHTpt9

Didi is going to be the "Amazon" of services in China, handling everything from rides, package and services (food, groceries, medical and health) deliveries.

This was a smart move by both Uber and Didi (both were losing money) and a good move for Apple's recent investment.

In the end though the cards are stacked against any foreign company doing business in China.  Their "capitalist" system is designed to allow companies in to learn from their strategies and tactics, then home grow competitors with strong national backing (both investments through China National Fund and through regulatory control).  Thus creating Chinese monopoly clones of successful foreign businesses.  

Apple is seeing this now in their declining share of the Chinese smartphone market, as Chinese companies create successful clones.   Eventually one of these companies will rise to the level of a Samsung (essentially Korea's version of a monopoly) and that will be the end of Apple's cell phone business in China.  

Give me a break.

Chinese companies are NOT stealing premium iPhone buyers in China.  Look at the long term graph for iPhone units sold in China the last 5 years. The trend  is still a strong up. The iPhone6 was a super cycle, an anamoly. There was massive pent up demand for a bigger iPhone. People were waiting multiple years to buy a bigger iPhone and when it came out, sales were ridiculous. So of course iPhone6s sales would not be as strong.  

But compare iPhone5s sales to iPhone6s sales. There is tremendous growth in units sold - about 50% unit growth in China. 

Apple is an aspirational brand: like BMW, like Louis Vuton. The Chinese will always buy iPhones as long as Apple continues to lead the way in Software/Hardware/Services integration. And with the pathetic state of Android, I'm pretty sure Apple will lead for many years.

One down year is not a trend.  Three years is a trend.  If iPhone7 sales are weaker than 6s. And iPhone8 is weaker than iPhone7 then its a strong downward trend. Till then the iPhone is still in an upswing and dominating the premium market.

I agree with you that one down year is not a trend, but I didn't say otherwise.  My point was a broad comment on how China currently views capitalism.  My comments regarding "declining share of the Chinese smartphone market" is backed up by last Friday's article - http://appleinsider.com/articles/16/07/29/apples-iphone-falls-from-3rd-to-5th-in-china-smartphone-marketshare

My personal opinion is that Apple's iPhone sales in China have probably peaked.   You will continue to see Chinese companies vie for greater market share (and move higher up the food chain to premium phones) over the next five years.

singularity

sog35 said:

Apple's investment in Didi just doubled overnight.  With a virtual monopoly their $1 billion stake is easily worth $2 billion.

I want Cook to make more of these types of strategic investments and less spending on buybacks.  Especially if its foreign countries where their cash is trapped anyway. 

That's why the EU is so stupid. They want Apple to pay more taxes but that will only cause Apple to leave those countries. Instead they should give incentives to Apple to invest in their countries.

Apple is not going to leave the EU. You don't leave highly profitable markets because just maybe a tax deal goes sour. You are just as delusional as ever.

anantksundaram

Another US tech firm bites the dust in China. Add to the debris pile of firms like Google, Facebook, LinkedIn, Twitter, Amazon and EBay (the last two of which, although allowed to compete there, are hamstrung by all kinds of regulations.) And no one in the US government -- not especially the USTR -- seems to give a hoot about this.

It is really quite brazen and unbelievable how Chinese firms are allowed unfettered access to US markets, but the reverse is not true, especially in IT.

badmonk

Jean Liu is the most desirable human in the known galaxy, a complete brainiac mynx, a mega-win for all parties involved.

Microsoft & Alphabet should watch and learn at the feet of the Masters before they spend 10 billion dollars buying Tidal.

cali

gatorguy said:

cali said:

Does Goog get any of this?

Any of what? I think Google Ventures is still an Uber investor if that's what you were asking. I doubt any of the money is being given to the investors tho. But perhaps you meant something else? 

I just meant in general. Doesn't Goog own part of uber? Therefore they'd get some money from the deal or part of the %20 from Didi royalties?
Anything?

gatorguy

cali said:

gatorguy said:

cali said:

Does Goog get any of this?

Any of what? I think Google Ventures is still an Uber investor if that's what you were asking. I doubt any of the money is being given to the investors tho. But perhaps you meant something else? 

I just meant in general. Doesn't Goog own part of uber? Therefore they'd get some money from the deal of part of the %20 from Didi royalties?
Anything?

No I don't think so. AFAIK Google Ventures, which isn't Google proper, put up some seed money and start-up advice when Uber first began and may still be an investor now. 

EDIT: Thanks Cali, it turned out to be a great question. I'd been thinking Google Ventures was a separate Page/Schmidt/others company, apart from Alphabet. I'm wrong.
Recode has a lengthy article about who they are and what they do.
http://www.recode.net/2015/12/6/11621176/google-ventures-owns-part-of-several-unicorns-but-the-biggest-and

and a very recent one where Google Ventures says Uber is their most valuable investment.
http://www.bloomberg.com/news/videos/2016-04-01/google-ventures-ceo-uber-is-our-largest-investment

brucemc

anantksundaram said:

Another US tech firm bites the dust in China. Add to the debris pile of firms like Google, Facebook, LinkedIn, Twitter, Amazon and EBay (the last two of which, although allowed to compete there, are hamstrung by all kinds of regulations.) And no one in the US government -- not especially the USTR -- seems to give a hoot about this.

It is really quite brazen and unbelievable how Chinese firms are allowed unfettered access to US markets, but the reverse is not true, especially in IT.

It is quite hard to believe, but perhaps the fact that China holds about 1.2 trillion of US debt (largest foreign holder at 8%) is a component of that. If the US had not racked up so much debt they would have much more freedom of movement on many fronts. 

anantksundaram

sog35 said:

anantksundaram said:

Another US tech firm bites the dust in China. Add to the debris pile of firms like Google, Facebook, LinkedIn, Twitter, Amazon and EBay (the last two of which, although allowed to compete there, are hamstrung by all kinds of regulations.) And no one in the US government -- not especially the USTR -- seems to give a hoot about this.

It is really quite brazen and unbelievable how Chinese firms are allowed unfettered access to US markets, but the reverse is not true, especially in IT.

you are 100% right about this.

But this is the golden rule in effect.  He who owns the gold, rules.  And sorry to say the USA needs China more than China needs the USA at this point.

How so? I actually think that, at a macro level (not just Apple), China needs the US more than we them. We don't wave our stick enough, and when needed, use it. 

crowley

anantksundaram said:

sog35 said:

you are 100% right about this.

But this is the golden rule in effect.  He who owns the gold, rules.  And sorry to say the USA needs China more than China needs the USA at this point.

How so? I actually think that, at a macro level (not just Apple), China needs the US more than we them. We don't wave our stick enough, and when needed, use it. 

Inclined to agree. China has some manufacturing advantages, but it's a buyers market and the buying is very weighted towards the US. Other countries with abundant labour and investment capital can compete with China for manufacturing exports, but if China can't sell to the US then that's a big problem for it. It's already selling elsewhere, but the US makes up 20% of its exports, and if that tightens then China is in trouble.