By Rick Carew
HONG KONG--U.S. hedge funds are jumping onboard China's dominant
taxi-hailing app business, putting an $8.75 billion valuation on
the Chinese startup.
Coatue Management LLC is leading a consortium of investors
buying about $600 million of shares in the combined Didi
Dache-Kuaidi Dache business, according to people familiar with the
situation. Coatue is purchasing about $250 million of common shares
of the combined company and Farallon Capital Management LLC is
buying about $75 million, the people said.
Other institutional investors and insiders are taking the
remainder of the shares, the people said, although the other
investors couldn't be identified.
The $600 million stake being sold is a portion of the common
shares in the combined company currently owned by Kuaidi Dache's
management team, they said.
The deal increases the value of the business to $8.75 billion,
nearly 50% higher than the previous valuation of about $6 billion,
which was based on fundraisings in recent months. The skyrocketing
valuation of the company highlights the record amounts of cash
going into Chinese technology startups, as investors bet on rapid
growth in the country's e-commerce market. Hedge funds and
high-net-worth individuals are putting hefty price tags on Chinese
startups that haven't yet figured out how to generate revenue
consistently, let alone make a profit.
The higher valuation is being driven by investors' expectation
that Didi Dache-Kuaidi Dache will now turn from competing against
each other for taxi-hailing customers--99% of rides booked through
an app in China are made using either Didi Dache or Kuaidi
Dache--to offering a range of new services. Expansion includes an
emphasis on promoting higher-end private car service and new plans
to operate airport shuttles and cargo services.
Still, Didi Dache-Kuaidi Dache's current valuation is much lower
than that of global ride-hailing app Uber Technologies Inc., which
is currently valued at $41 billion. Uber has found it difficult to
make inroads in many Asian cities, where local competitors have
taken more market share.
China's two big taxi-hailing apps, Didi Dache and Kuaidi Dache,
merged in February in a $6 billion deal after neither firm was able
to triumph in an escalating battle to win over China's taxi riders.
The two services spent hundreds of millions of dollars of investor
cash trying to gain an edge by offering free rides and other deals.
They will continue to operate under separate brands with their own
apps.
The end of the Chinese taxi war is paying off for Didi
Dache-Kuaidi Dache investors as new investors are increasing their
expectations for the company's value. Alibaba Group Holding Ltd.
and Tencent Holdings Ltd. are big backers of the combined company
after separately investing in the two businesses. They have struck
a careful balance in the shareholding, as Alibaba and Tencent are
competitors in many parts of China's Internet landscape.
Alibaba and Tencent handle payments from the app company's taxi
riders through their online payment platforms. Other big-name
investors in Didi Dache-Kuaidi Dache include Japan's SoftBank
Corp., U.S. investment firm Tiger Global Management LLC, DST Global
and Singaporean state investment firm Temasek Holdings Pte.
Ltd.
The Kuaidi Dache management team's decision to sell shares is
part of a plan for them to take a back seat in running the combined
company, according to people familiar with the situation. Kuaidi's
top managers will likely exit from senior roles in the company in
the next six months, although Chief Executive Dexter Lu will
continue to serve as a board member and in other roles after that
transition is complete, according to these people. That puts Didi
Dache's managers--Chief Executive Cheng Wei and President Jean
Liu--in the driver's seat of the combined company. Ms. Liu is a
former Goldman Sachs Group Inc. banker and the daughter of Liu
Chuanzhi, the founder of Chinese computer maker Lenovo Group
Ltd.
Coatue Management, which hired deal maker Tony Zhang from DCM
Ventures last year to spearhead its entrance into private deals in
China, has been particularly active of late. China's Uxin Ltd., one
of the country's largest online used-car auction service providers,
raised $170 million from Chinese search giant Baidu Inc., Coatue
and KKR & Co. in recent weeks.
Farallon Capital is a multistrategy fund manager that oversees
about $20 billion in assets.
Juro Osawa contributed to this article.
Write to Rick Carew at rick.carew@wsj.com
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