In February, Kuaidi Taxi and Didi Taxi, which are apps of Alibaba Group Holding Ltd (NYSE:BABA) and TENCENT HOLDINGS ADR (OTCMKTS:TCEHY), respectively said that the two apps will be merged in a deal worth $6 billion. The merger will result in one of the largest Smartphone apps of taxi hauling service. The deal can drive ecosystem penetration of two companies deeper.

The details

Tencent and Alibaba have yet not disclosed the specifics of the shareholding structure after the merger. Didi Taxi has a larger user base of almost 150 million compared to Kuaidi’s user base of 88 million. The market expects that Didi Taxi will own 52 to 55% share in the new application. The merger is believed to be a strategic plan as Uber begins its operations in China. It is considered as negative for Baidu Inc (ADR) (NASDAQ:BIDU) that invested almost $600 million in Uber in China.

The impact

The merger of Tencent’s Didi and Alibaba’s Kuaidi will result in almost a monopoly in taxi hauling market in China. It will enable both apps to expand their mobile ecosystems and respective payments. At the same time, it will adversely affect the performance of BIDU as it faces tough challenges in expanding its mobile ecosystem.

The future ahead

The merger will allow Alibaba to complete eventual integration of its Aliyun ecosystem. It is set to become a competitive ecosystem to that of Android and iOS after the recent investment done in Meizu handset. Tencent will be able to expand its WeChat ecosystem, giving it a competitive edge over other social networking platforms including Weibo Corp (ADR) (NASDAQ:WB).

The war comes to an end

Tencent and Alibaba’s decision to merge their taxi hauling apps is a strong step as it ends the competitive war between the two companies. The merger of two apps is expected to generate $50 million to $75 million per annum in synergy, given their customers base of more than 250 million users.

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