A new $US15 billion (£9.8 billion) Chinese mega startup is set to be created as two companies backed by Alibaba and Tencent look to merge into one giant local services platform.
The merger between meituan.com, part-owned by Alibaba, and Tencent-backed dianping.com will create one large platform that provides everything from restaurant reviews and movie bookings, according to sources cited by The Wall Street Journal.
The deal could be announced as early as Thursday and the sources say that Meituan’s shareholders will own about 60% of the new enterprise.
China’s largest tech giants are getting behind the new wave of companies that are tapping into the online-to-offline services market, which could be worth as much as $US1.6 trillion (£1 trillion), according to a report by the iResearch Consulting Group.
Investors anticipate that an increasing number of people will use their smartphones and tablets to book everything from accommodation to car journeys.
iResearch forecasts that the adoption of location-based services in China could rise 29% to 400 million by 2017.
The new tech giant could compete directly with Baidu, which is investing $US3.2 billion (£2.1 billion) in Nuomi, its own local services venture, over the next three years as it looks to move away from search and into on-demand services.
“The two companies merging would allow them to have absolute dominance of the group-buying market, and require less cash burn,” said Wang Weidong, an analyst at iResearch in Beijing. “They will be putting a lot of pressure on competitors.”
Meituan, a five-year-old Beijing startup often compared to Groupon, accounted for 51.9% of Chinese group buying transactions in the first six months of this year, while Dianping accounted for 29.5%, and Nuomi had 13.6%, according to Bloomberg.
Meituan’s revenues were expected to more than triple to approximately $US300 million (£196 million) in 2014, according to chief executive Wang Xing, and the company’s last funding round valued it at $US10.5 billion (£6.9 billion).
Dianping, founded in 2003, offers search, consumer-generated reviews, and offers. The company is backed by Chinese investment holding firm Tencent, which holds roughly 20% of the shares.