Alibaba is disrupting China’s web fundraising wars. The Chinese web group is offloading a stake in Meituan Dianping at the same time as the local startup seeks up to $3 billion in fresh funds. The parallel sales will test investor demand for China’s “online-to-offline” services boom.
It’s less than two years since Meituan and Dianping, which are similar to U.S. companies such as Groupon and Yelp, agreed to merge. The two start-ups had burned through cash by offering discounts on services from travel to takeaway food. The deal marked a rare truce between Alibaba, which had backed Meituan, and online gaming giant Tencent, which owned 20 percent of Dianping.
Alibaba’s exit from the combined group has renewed the rivalry: the $204 billion e-commerce giant is selling out in order to concentrate on its own restaurant-focused service, Koubei. Meanwhile, Tencent has committed an additional $1 billion to Meituan Dianping, according to a person familiar with the matter.
The reshuffle comes as sales are soaring: group-buy transactions in China more than doubled to 77 billion yuan ($12 billion) in the first half of the year, according to Tuan800, which tracks local deals. Yet the battle for market share has been hugely expensive because sites are reaching into their own pockets to lure customers. The merger earlier this year between rival taxi apps Didi and Kuaidi, which also engaged in a heated subsidy battle, was a sign that investors were beginning to lose patience.
The rival offerings of Meituan Dianping shares will present some clues about how much investors value the purveyor of discounted manicures and movie tickets. But they will not be strictly comparable. Meituan Dianping is luring investors to its fundraising with the promise of a guaranteed return and protections in the event that the company goes public or is acquired at a lower valuation, according to a person familiar with the matter. That makes the new shares more attractive than those which Alibaba is selling.
As an early investor in Meituan, Alibaba should emerge with a positive return even if the shares fetch less than the rumoured $1 billion. But the price will give a better glimpse of what investors really think of the business.