BEIJING/HONG KONG (Reuters) - China’s two biggest online-to-offline (O2O) service providers, backed separately by rivals Alibaba Group Holding and Tencent Holdings, announced a merger, as Internet firms join forces to prosper in a highly competitive market.
Meituan.com and Dianping Holdings said on Thursday they are combining to create China’s dominant player in services such as finding deals at local restaurants and booking cinema tickets through smartphones as well as group-buying of coupons and accessing ratings, similar to those offered by Groupon Inc and Yelp Inc.
The merged company could be valued at $15 billion or more, and a more precise valuation may come in the next few weeks as it negotiates a fresh round of funding with investors, said a person with direct knowledge of the deal, who couldn’t be named because details of the transaction were not disclosed.
A combination of the two unlisted O2O firms could pose a threat to the plans of Baidu Inc, China’s top Internet search engine, which has unveiled plans to invest $3.2 billion in O2O over the next three years.
Financial details of the deal were not immediately disclosed, but the merger comes after Didi Dache and Kuaidi Dache, two leading taxi-hailing firms which were also backed separately by Alibaba and Tencent, combined similarly in a share swap worth $6 billion earlier this year.
Zhang Tao and Wang Xing, the respective chief executives of Dianping and Meituan, will become co-CEOs of the yet to be named new company. The two companies would retain their respective brands and management structure and independently operate their businesses.
The Didi-Kuaidi deal prompted speculation among China’s tech investors and bankers that more such mergers might follow, given the intense and often unprofitable competition between leading companies in China’s Internet sector.
Speculation of a merger between Dianping and Meituan had swirled in early 2015, as Dianping finished raising more than $800 million in capital at a valuation of $4 billion.
Meituan and Dianping had discussed a potential combination before, but the talks never evolved as the rivals wanted better valuation terms, the source said. More recently, the two were in the process of raising more funds and decided to give the combination another try, at the urging of several investors who wanted the companies to preserve cash.
China Renaissance served as exclusive financial adviser to both Meituan and Dianping. The investment bank was also adviser to both Didi and Kuaidi in their deal.
Additional reporting by Matthew Miller; Editing by Muralikumar Anantharaman