Didi-Uber China Marriage To Shake Up Global Alliances

| About: Didi Chuxing (DIDI)

Bottom line: Didi Chuxing’s new marriage with Uber China could quickly come under stress due to rivalries between the pair outside China, and might force them to forge a broader global alliance.

A couple of new reports are spotlighting how the new mega-merger between Didi Chuxing (Private:DIDI) and Uber’s (Private:UBER) China unit is creating uncertainty for existing global alliances involving the 2 former bitter rivals. The larger of the headlines has Uber’s US rival Lyft (Private:LYFT) suddenly questioning its alliance with Didi less than a year after the pair formed the tie-up. The other has Didi helping to raise money for Grab (Private:GRAB), also known as GrabTaxi, a bitter rival of Uber that operates service in 30 cities within 6 Southeast Asian countries.

We’ve seen this kind of chaos before with similar mega mergers in China, including one last year that formed the current Didi Chuxing, and another that brought together two group buying giants to form domestic mammoth Meituan-Dianping. In both of those cases, the marriages brought Chinese Internet titans and bitter rivals Alibaba (NYSE:BABA) and Tencent (OTCPK:TCEHY) into direct conflict, since each had invested in one of the two companies that ended up merging.

This latest case could continue that trend, since Uber counts China’s third major Internet company, online search leader Baidu (NASDAQ:BIDU), as one of its major backers. But Uber’s vast network of global investments means its new China marriage with Didi also has the potential to upset alliances in other global markets where both companies operate.

One of those is Southeast Asia, which is one of the major markets where Didi Chuxing launched its drive onto the global stage when it invested in Grab about a year ago. (previous post) No amount was ever given for that investment, though Didi made the move together with Japan’s Softbank and I speculated at the time that the amount could total around $500 million.

Now the latest reports are saying that Didi and Softbank are leading a new funding round for Grab that could raise around $600 million and could close as early as next week. (English article; Chinese article) The reports say that Grab is looking to raise an additional $400 million in the following weeks, giving it well over $1 billion in cash in its fight with Uber and other local rivals for market share.

Torn Between Alliances

Of course the situation is suddenly a bit more complicated since now Didi is helping to fund a rival of its own partner following the new tie-up with Uber China. The case looks similar with the Lyft deal, which was announced as a strategic alliance in the second half of last year. (previous post) The pair moved quickly and earlier this year launched an integrated platform that allowed Didi subscribers to seamlessly use Lyft’s services while traveling in the US, and vice versa.

Now Lyft is saying the new marriage will prompt it to re-evaluate its alliance with Didi, though it’s not adding any other details. (English article) That’s not too surprising following the deal that will see Didi and Uber’s China operations combine, with Didi holding about 80 percent of a new Chinese powerhouse with a market value of $35 billion, and Uber holding the rest.

Another alliance that could face similar questions is Didi’s partnership in India with local player Ola. Similar to the Grab deal, Didi also invested in Ola last year when it was trying to move beyond its home China market.

From a broader perspective, this new China marriage could be highly problematic for Didi, since it could put the brakes on all of its global expansion plans if Didi really wants to avoid conflict with Uber. That would seriously hurt its global growth prospects, and Didi would probably only agree to such a move if it became a major stakeholder in more of Uber’s global operations. Until that happens, Didi will probably feel the need to keep investing in partners like Grab and Ola outside China, which could quickly strain its new marriage with Uber in the vast China market.