Alibaba Group plans to merge its food delivery units and raise funds for the combined business to intensify the rivalry with Tencent-backed Meituan Dianping for dominance of China's booming on-demand services market.
According to reports, the Alibaba units to be merged include food delivery platform Ele.me and food and lifestyle services firm Koubei. Alibaba is looking to raise between $3 billion and $5 billion for the combined entity, said one of the sources and the entity could be valued at up to $25 billion.
In addition, a Hong Kong-based Alibaba task force is working on the merger and fundraising for the combined entity.
Alibaba's units and Meituan, backed by social media and gaming giant Tencent Holdings, are fighting for supremacy in China's buoyant online-to-offline (O2O) market where apps link smartphone users with bricks-and-mortar businesses to provide local food delivery and other offerings.
"Alibaba and Meituan are the two main companies that can offer comprehensive O2O services," said Mo Jia, a Shanghai-based research analyst with technology consultancy Canalys. "Alibaba's three units are complementary to each other and it has strategic logic to merge them into one platform to compete with Meituan."
One of the sources said that fundraising is expected to launch later this year and that the new unit would also include Alibaba's Hema Fresh, a chain of cashless supermarkets offering fresh produce and food delivery.
On the other hand, as of now, Alibaba, which also handles media queries for Koubei and Hema, has declined to comment. A spokesman for Ele.me also denied the merger and fundraising plan. All the people who tipped off the press about the plans declined to be named as the information is confidential.
According to a June report by Chinese research firm iiMedia Research, Ele.me and Baidu Waimai, which Ele.me acquired a year ago, held a combined 55 percent of China's food delivery market in the first quarter compared with Meituan's 41 percent.
China's biggest ride-hailing firm Didi Chuxing also entered the fray in April, launching its own food delivery service.
Meituan Dianping is expected to raise more than $4 billion when it floats in Hong Kong in the coming months. Last year, the company was valued at $30 billion in a fundraising round.
In April, Alibaba bought the shares it did not already own in Ele.me in an all-cash deal that valued the startup at $9.5 billion. The e-commerce giant and its financial affiliate Ant Financial Services Group previously owned a 43 stake in the business, whose name roughly translates to "Hungry?".
Koubei, founded in 2015 as a 50-50 joint venture of Alibaba and Ant Financial, had a valuation of $8 billion at the end of 2017, according to a list of unicorns published by a unit under China's Ministry of Science & Technology in March. Silver Lake, CDH Investments, Yunfeng Capital and Primavera Capital joined as investors in a January 2017 funding round.
Ant Financial declined to comment.
There are no publicly available numbers for Hema, which was founded two years ago as part of Alibaba's retail push and now operates more than 60 supermarkets in 13 cities in China, according to its website.
