China's Meituan Dianping acquires bike-sharing firm Mobike for $2.7 billion

BEIJING (Reuters) - Meituan Dianping, China’s largest provider of on-demand online services, is buying bike-sharing firm Mobike for $2.7 billion, in a deal that will intensify the rivalry of their common backer Tencent Holdings with Alibaba Group.

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Meituan announced the deal on Wednesday but did not disclose the value of the deal. Two sources told Reuters the equity value of the deal was $2.7 billion.

The deal consolidates the resources of the two firms, which are backed by Chinese gaming and social media giant Tencent, as Mobike faces off against Alibaba-backed Ofo, which also counts ride-hailing firm Didi Chuxing as a major investor.

The two bicycle-sharing companies have raised hundreds of millions of dollars from investors but have waged a costly war of subsidies in a bid to win the Chinese and overseas markets.

“(We) need to be more soberly aware that the competition Mobike is facing is becoming increasingly fierce,” said Mobike executives in a letter to employees shared with the media on Wednesday.

Mobike in June raise $600 million in a round led by Tencent and expanded into Singapore, the United States and the United Kingdom, among other markets.

Ofo this month said it raised $866 million in a new funding round led by Alibaba. Both Mobike and Ofo say they have roughly 200 million users each globally.

As part of the acquisition, Meituan and Mobike will share technology, operations, marketing and customer service resources, Meituan said. Mobike, which counts over 30 million rides a day, will maintain its brand following the deal and keep its current management team, Meituan said.

The consolidation will help Meituan sharpen its offerings in the on-demand sector. Alibaba-backed services are also integrating aspects of their payments and apps to create linked services that provide ticketing, bike-sharing, ride-hailing and food delivery.

Earlier this week, Alibaba said it would assume full control of Chinese food delivery platform, a rival to Meituan.

And Alibaba-backed Didi has begun integrating Ofo’s service into its own platform, and is also launching its own branded sharing bicycles.

Reporting by Cate Cadell in BEIJING, Julie Zhu and Kane Wu in HONG KONG; Editing by Muralikumar Anantharaman