Gojek and Grab, south-east Asia’s biggest start-ups, have resumed talks on a merger at the behest of shareholders including SoftBank, after the Japanese group’s founder Masayoshi Son threw his weight behind a deal.
The discussions come as the lossmaking rivals haemorrhage money due to coronavirus-related restrictions, especially in Indonesia where they compete most fiercely. A citywide lockdown was reimposed in Jakarta last week.
The valuations of the two groups, which operate “super app” platforms offering a range of services from ride-hailing to food delivery and financial services, have fallen substantially in the secondary market where shares trade informally.
Shares in Singapore-based Grab, which was valued at $14bn at its last funding round in 2019, have been trading at a 25 per cent discount, according to secondary market brokers. Shares in Jakarta-headquartered Gojek, valued at close to $10bn last year, have also been selling at steep discounts, particularly from early shareholders wanting to exit, brokers said.
Grab, SoftBank and Gojek declined to comment on potential merger talks.
Stress caused by the pandemic and concerns over the ride-hailing business model globally have put pressure on the companies to agree a deal.
Shares in US peers Uber and Lyft are languishing well below their initial public offering prices while sizeable stakes in Didi Chuxing, China’s biggest ride-hailing company, are on offer at considerable discounts in private markets.
All of that makes consolidation more likely, said Asad Hussain, an analyst at PitchBook, a US data and research group. A merger “could significantly accelerate both Grab and Gojek’s paths to profitability”, he said.
Before Covid-19, both companies had been “moving towards better monetisation” such as by raising the commissions they charge drivers and reducing customer subsidies, said Roshan Raj, a partner for consultancy Redseer who focuses on south-east Asia.
“Covid-19 disrupted these trends in a material way. A revival in ride-hailing could be some time away,” he added.
Previous merger talks between Grab and Gojek six months ago were stymied by opposition from SoftBank, one of the former’s biggest shareholders, and its Vision Fund. SoftBank’s Mr Son believed at the time that ride-sharing would be a monopoly industry, where the company with the most cash eventually dominated any given market, people close to the Japanese billionaire said.
But Gojek, whose investors include Chinese internet groups Tencent and Meituan-Dianping and more recently Silicon Valley’s Facebook and PayPal, has proved resilient, especially in Indonesia.
Mr Son is now among the biggest champions of a merger, the people close to him added, and vast synergies and cost cutting could contribute to an immediate rise in valuation for both companies.
But Indonesia, the biggest market for both Grab and Gojek, could prove a sticking point.
Gojek has political support in the country, where its founder Nadiem Makarim is a government minister, meaning it could have more leverage in any deal. “Gojek is the home team and governments back the local guy,” said one investor in the company.
The talks are also encountering resistance from some senior Grab executives, who fear they will not come out on top against long-term shareholders looking to exit their lossmaking positions in the group.
Any deal may also be closely scrutinised by regulators in terms of its impact on jobs given the poor economic backdrop, even if some investors at both companies believe that antitrust officials are less focused on competitive considerations than in the past.
“At a time when many economies are struggling, a merger will unlikely gain traction with regulators given that jobs will likely be cut,” said Kenny Liew, a technology analyst at Fitch Solutions.
Additional reporting by Miles Kruppa in San Francisco