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Grab and Gojek in Talks of Merger?

Southeast Asia’s titan start-ups including the Singapore-based Grab and the Jakarta-headquartered Gojek resumed previous talks regarding their potential merger. Moreover, the merger talk is now supported by the prominent Japanese figure, Masayoshi Son, famously known for being the founder of SoftBank. The idea of a possible merger resurfaced after the two giants continuously burned an extensive sum of cash due to the ongoing quarantine restrictions enacted. In general, the ride-hailing business model has been severely impacted by the COVID-19 pandemic. In the last funding round of 2019, shares of Grab were valued at $14 billion and Gojek was valued close to $10 billion, yet both of their shares have been selling at steep discounts. Prior to the pandemic, both companies were reaching a “healthier state” as they were on track to increase their drivers’ commissions and reduce the customer subsidies, yet once again these efforts were disrupted by the current adversities. Merging the two giants could significantly initiate both Grab and Gojek’s path to profitability. However, amidst the struggling economy, a merger between the two has slim chances of gaining approval from regulators, given the possibility of a lot of (employee) cuts, as mentioned by Kenny Liew, Technology Analyst at Fitch Solutions.

However, an analyst at Pitchbook, Asad Hussain, begs to differ. He stated that this is the perfect time for these two ride-hailing giants to perform a merger. A merger would accelerate the profit gaining possibilities for these two companies. According to Tech In Asia, a merger would boost the valuation of these two companies by up to USD 72 billion in 2025, Tech In Asia also stated that this merger would bring an annual profit as big as USD 16,7 billion for these two giants, solidifying their ground as the largest decacorn in the world. With recent talks around Grab and Gojek potential merger starting to resurface, this news didn't escape the ears of e-commerce giant, Alibaba, hearing the potential merger between two ride-hailing giants, Alibaba acts swiftly to the news. According to the latest update, Alibaba has already prepared a proposition to inject a total sum of USD 3 billion to Grab Holdings Inc provided that the merger would take place. With a large amount of investment Alibaba would take over the place of the sole investor within the merger, furthermore, Alibaba is also expected to buy Grab stocks from the hands of UBER since it would be a potential transaction that results as the biggest investment of Alibaba in Southeast Asia.

The merger buzz between two unicorns in Southeast Asia has been heard for a long time. Particularly in late February or about seven months ago. The first news was reported by The Information and Tech in Asia, which said that the merger plan began when Nadiem Makarim left his position to be the minister of education on Jokowi's Onward Indonesia Cabinet. Also, with profoundly intense competition between these two large companies, and with both use "burning cash" strategy to provide subsidies and promotions to drivers and customers, it makes sense in the business perspective of this merger to actually happen. The merger is also estimated to produce a massive $16.7 billion in annual revenue and a $72 billion valuation by 2025. The rumor was eventually denied by Gojek's spokesman to The Jakarta Post, stating, "There are no plans for any sort of merger and recent media reports regarding discussions of this nature are not accurate," on Tuesday (2/25). It is also asserted in late reports that the current pandemic condition might have caused the failure of the merger talks seven months ago of the two companies. Indonesia has made restrictions on app-based ride-hailing services, such as limiting the number of passengers or even a ban on carrying passengers during the pandemic, making it increasingly challenging for both companies to develop. All in all, the merger can significantly accelerate both of them to achieve higher profitability, but amid Large-scale Social Restrictions (PSBB) stage 2, will Gojek and Grab continue their merger plan?


Financial Times

CNBC Indonesia

The Jakarta Post

CNN Indonesia

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