UPDATE 1-Rising China fuel price spurs Shanghai taxi merger
(Adds quotes, details and background)
By Fang Yan and George Chen
SHANGHAI, June 25 (Reuters) - Shanghai's top taxi operator Dazhong (600611.SS) is in talks to acquire the taxi unit of local rival Shanghai Haibo (600708.SS) as the industry grapples with rising domestic fuel prices, industry and government sources familiar with the situation said on Wednesday.
Senior Shanghai government officials, in addition to giving taxi operators temporary government subsidies, are encouraging mergers to create larger, more efficient players that would be better able to cope with rising fuel prices, the sources said.
Dazhong Transportation (Group) Co, in which investment bank Credit Suisse (CSGN.VX) holds a small stake, was already in preliminary talks to buy out Haibo's taxi unit when Beijing added urgency to the negotiations with last week's surprise announcement of a fuel price hike, the sources said.
The sources declined to be identified because they were not authorised to speak to the media on the matter.
A Dazhong spokesman said he had no knowledge of the matter, while Haibo executives could not be reached for comment.
The acquisition, if it goes ahead as planned, would expand Dazhong's fleet to roughly 14,000 taxis from 9,000, surpassing the combined fleet of 13,000 taxis of Shanghai Qiangsheng Holding Co (600662.SS) and Shanghai Bashi Industrial (Group) (600741.SS), which are also negotiating a taxi merger deal. (For details please click [ID:nSHA261793])
"Dazhong Chairman Yang Guoping is the initiator of the proposed merger," said one industry source close to the firm.
"Dazhong has been the market leader for years and Yang wants to maintain that edge."
INDUSTRY CONSOLIDATION
The taxi assets of Haibo, which also runs citywide logistics and cargo services, were valued at 1.65 billion yuan ($240 million) as of the end of 2007, while Dazhong's assets totalled 9.97 billion yuan, according to their annual reports.
The sources said Haibo had not signed off on a deal, with some executives at the taxi unit fearing a management shakeup, but Dazhong's case was bolstered when Beijing raised state-set fuel pump prices nearly 20 percent last Thursday, the first rise in nearly eight months and the steepest one-off hike ever.
Senior officials of the Shanghai city government held a closed-door meeting this week to discuss plans to help local taxi companies, mostly state-controlled enterprises, cope with operational difficulties due to fuel price hikes, they said.
Mergers were seen as one potential solution.
"It's the same as the idea behind consolidation in the airline industry, but it will certainly be much easier for taxi firms to merge," said one source close to the government.
"The government wants to make everyone bigger and stronger through consolidation so they can better meet industry challenges such as fuel price hikes," he added.
In 2001, about 20 small and medium-sized taxi operators agreed to be merged into a new company, Blue Union, in the first step of taxi industry consolidation driven by the Shanghai government. ($1=6.866 Yuan) (Editing by Edmund Klamann)
