China regulator says Didi, Uber deal will need Mofcom approval

BEIJING (Reuters) - A merger between Chinese ride-hailing firm Didi Chuxing and the China unit of U.S. rival Uber could face its first hiccup after China’s commerce ministry (Mofcom) said on Tuesday it had not received a necessary application to allow the deal to go ahead.

People walk out of the headquarters building of Didi Chuxing in Beijing, China, May 18, 2016. REUTERS/Kim Kyung-Hoon

However, Didi said there was no need to seek regulatory approval, saying the two ride-hailing companies’ lack of profits meant they weren’t required to file with the ministry.

Didi’s acquisition of Uber’s China operations, announced on Monday, will create a roughly $35 billion ride-hailing giant and could raise monopoly concerns as Didi claims an 87 percent market share in China. Uber China is the second largest player.

Mofcom, one of China’s anti-trust regulators, said at a news briefing that the two firms need to seek approval for the deal to go ahead. It had been unclear previously whether such a filing would be required as both firms are loss-making in China.

“Mofcom has not currently received a merger filing related to the deal between Didi and Uber,” ministry spokesman Shen Danyang said. “All transactors must apply to the ministry in advance. Those that haven’t applied won’t be able to carry out a merger” if they fall under applicable anti-trust and merger rules, he said.

In an emailed statement to Reuters on Tuesday, Didi contested Shen’s assertion that the firm is required to apply for approval.

“We are in close communication with authorities,” said Didi.

“Some of the financial metrics of the transaction did not meet the filing requirements. UberChina and Didi are not profitable yet, and UberChina’s turnover in 2015 didn’t meet the 400 million yuan ($60.30 million) trigger requirement for the anti-trust process.”

Didi and Uber have been in a fierce battle in China, spending billions of dollars to subsidize rides and win users.

Other players, however, could step up competition.

Jia Yueting, head of LeEco, the parent of smaller ride-hailing rival Yidao, said in a social media post the firm would offer steep rebates to attract passengers to help avoid a monopoly in the market.

“Yidao will soon kick off an even more aggressive cashback campaign,” according to a translation of Jia’s posting provided by a LeEco spokeswoman.

Regulations released last week that take effect on Nov. 1 legitimize ride-hailing, but prohibit services from offering rides below cost.

($1 = 6.6336 Chinese yuan renminbi)

Reporting by Jake Spring, Paul Carsten and Li Zimu, Norihiko Shirouzu and Beijing monitoring team; Editing by Ian Geoghegan and Adrian Croft