Beijing/Hong Kong: Chinese regulators have begun an investigation into the landmark merger of Didi Chuxing and Uber Technologies Inc.’s domestic business, initiating scrutiny of a deal that would create a $35 billion entity with overwhelming control of the ride-sharing arena.
The Ministry of Commerce has met twice with Didi executives after the deal was announced in August, requesting documents and other supporting material, ministry spokesman Shen Danyang told reporters on Friday.
The government is also seeking a deeper understanding of the ride-sharing sector, he said.
Didi’s decision to buy out Uber’s Chinese operation would give it control of almost 90% of the ride-hailing market. Yet the odds are slim that the ministry will nix such a high-profile deal involving a well-connected national corporate champion, legal and industry experts have said.
The Ministry of Commerce’s Anti-monopoly Bureau is the primary body for assessing the antitrust impact of deals but other national bodies can get involved.
“As a next step, the commerce ministry will continue to investigate this case in accordance with the law, to safeguard fair competition and consumers’ interests,” Shen said without specifying which areas the government agency will zero in on.
The Didi-Uber transaction is aimed at ending an expensive price war and frees the US company to focus on other markets—and possibly an initial public offering down the road. It marked a truce to a bruising battle for leadership that’s cost billions of dollars. Didi however had not yet sought official permission, Shen said. That may be because its reported revenue falls below the threshold required for government merger approvals, antitrust lawyers have said.
“The Ministry of Commerce usually doesn’t take the initiative to investigate these cases unless there are complaints,” said Liang Junjie, a lawyer at the Global Law Office. “If the companies have proceeded to merge without filing an application to Mofcom, they could receive certain punishments. But it’s very rare that a deal won’t go through because of a probe.”
China has little experience with regulating the so-called sharing economy, which may increase the odds of the deal’s approval.
While Uber and Didi have operated in the country for years, it was only recently that the government granted ride-sharing services legal status. Regulators are also likely to provide a generous classification of the company’s market: though Didi is dominant in ride-sharing, it’s only one of scores of players in the nation’s transport system.
Recent technology-industry mergers have passed without incident: Meituan and Dianping were able to combine in group buying and food, while Ganji.com and 58.com Inc. got together in the classified ads business. Bloomberg