Uber China to merge with rival Didi Chuxing (update: confirmed)

Uber has agreed to sell its Uber China arm to arch rival Didi Chuxing in exchange for a 20 percent stake in the merged operation, according to reports from Bloomberg and others. The combined company is reportedly worth $35 billion, giving Uber a $7 billion share. Didi will continue running Uber under its own brand for the foreseeable future. “Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there,” Uber CEO Travis Kalanick said in a leaked blog post.

While deal comes just days after China legalized ride-hailing apps in the nation, the companies have been in talks for a long while. Apple recently bought a large chunk of Didi Chuxing, so it now has a tenuous financial tie to Uber. As part of the deal, Didi is reportedly investing $1 billion in Uber, giving the US ride-sharing firm a valuation of $68 billion.

While Uber runs a profit in its well-developed markets, it has lost over $2 billion in China, despite giving 150 million rides per month. “Getting to profitability is the only way to build a sustainable business that can best serve Chinese riders, drivers and cities over the long term,” Kalanick said. Uber’s private equity investors were also anxious for it to unload its unprofitable Chinese holdings, so the sale paves the way for Uber to become a public company.

All that said, Didi Chuxing has so far denied the rumors, telling China’s Tencent Finance that it’s not sure where they came from. However, the parties may make the official announcement as early as today, according to reports.

Update: Shortly after denying the rumor, Didi Chuxing has now confirmed the merger. According to its Weibo post (Chinese), Uber will take a 5.89 percent share of Didi, which amounts to a “17.7 percent economic interest.” The remaining Chinese shareholders of Uber China will reportedly receive a 2.3 percent economic interest, making for a 20 percent stake total. Travis Kalanick will also join Didi’s board.

Source: Bloomberg, The Information (subscription)