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By Fang Yan and George Chen
SHANGHAI, June 3 Shanghai plans to merge two major taxi operators to create a new industry leader, in a government-backed consolidation ahead of the World Expo to be hosted by the city in 2010, people familiar with the situation said on Tuesday.
Shanghai Qiangsheng Holding Co (600662.SS), which operates about 8,000 taxis in the city, plans to acquire major assets, including the taxi and car leasing business, of rival Shanghai Bashi Industrial (Group) Co (600741.SS), said the sources, who declined to be identified because they are not authorised to discuss the plan publicly.
Bashi Industrial operates about 3,000 taxis in downtown Shanghai and roughly 2,000 in the suburbs.
Once completed, the deal would make Qiangsheng the largest taxi operator in Shanghai, overtaking current market leader Dazhong Transportation (Group) Co (600611.SS), which operates about 9,000 taxis, the sources said.
"The Shanghai government wants to create a flagship taxi operator in the city ahead of the World Expo in 2010," said a city government source who was briefed on the plan.
"The idea is for the city government to merge the lucrative taxi and leasing services of Bashi into its bigger rival Qiangsheng, although it does take time to complete such things," he added.
The sources said the government hopes to have a deal completed by the end of the year, adding it was too early to discuss concrete financial details of any possible deal.
Bashi Industrial, also a public bus service operator, had announced on Monday that it would divest its public transport assets and become a listing vehicle for the SAIC Group, China's biggest auto conglomerate. (For details click [ID:nSHA224909])
A spokesman for Qiangsheng declined to comment, while officials at Bashi Industrial could not immediately be reached for comment.
Qiangsheng, Shanghai's first domestic taxi firm founded by several executives in the early 1920s, is now ranked number-two by the number of taxis in the city behind Dazhong.
The Shanghai government took over Qiangsheng after the Communists won the Chinese civil war in 1949.
Besides taxi services, both Qiangsheng and Bashi Industrial operate car leasing businesses, competing with foreign players including Hertz Global Holdings Inc (HTZ.N) and Avis Budget Group Inc CAR.N in Shanghai where fast growing ranks of middle-class drivers prefer driving to nearby cities during holidays.
"Qiangsheng is a historical brand to the city, and it is already playing a leading role in the taxi industry in the city," said the government source.
"What the government is trying to do is to help the big player to grow bigger while to help the small players combine their forces to save cost and boost efficiency," he added.
The sources noted that the merger of taxi and car leasing businesses of Qiangsheng and Bashi Industrial would also bring opportunities for global car makers including Volkswagen AG (VOWG.DE) and General Motors Corp (GM.N).
Volkswagen dominates the 50,000-taxi market in Shanghai with its Santana series model manufactured by its joint venture with SAIC in Shanghai.
General Motors, a household car brand in China since the 1900s, is popular among the city's car renters who like its Buick series in particular.
"After the merger, Qiangsheng will become the new leader and the new Qiangsheng will certainly boost its fleet to make its market position solid," said the government source.