Grab Holdings and Gojek, Southeast Asia’s two most valuable privately-held startups, have agreed in principle to merge their operations and are currently ironing out the fine print, DealStreetAsia has learnt.
The contours that need to be fleshed out include the contentious issue of who gets to manage the combined entity in Indonesia, two executives directly aware of the negotiations said.
According to one of the executives who spoke to DealStreetAsia on the condition of anonymity, Grab has offered Gojek a 30 per cent stake in the merged entity. Gojek and its shareholders, however, are pushing for a larger stake on account of the company’s extensive presence in Indonesia, which is Southeast Asia’s largest market.
Singapore-headquartered Grab, which was last valued at $14 billion and is the bigger of the two companies, will have management control over the combined entity. Gojek’s two CEOs, Andre Soelistyo and Kevin Aluwi, are seeking to run the combined entity’s Indonesia operations as part of the deal. This proposed structure will see Soelistyo and Aluwi report to Grab co-founder Anthony Tan.
The companies are in a “hyper negotiations” phase, said one of the sources, highlighting that several of Gojek’s Indonesia-based senior executives are currently in Singapore after having braved a 14-day quarantine. At the same time, both parties are prepared for a long-drawn process, given their strong rivalry, complex structures and potential regulatory concerns.
The proposed merger is likely to encompass all verticals — the two companies offer an array of services including transport, food and package delivery, digital payments, and financial services — and markets in the region, we understand. Grab is present in eight Southeast Asian countries, while Gojek operates in Indonesia, Singapore, Thailand, Vietnam, and the Philippines.
While the combined entity will use the Grab brand through most of Southeast Asia, the companies are not in agreement over their approach in Indonesia. Grab is understood to favour joint branding, while Gojek prefers to retain its label in its home market.
DealStreetAsia has reached out to Gojek and Grab for comment.
Pacifying regulators a big task ahead
A merger of this scale involving two of Southeast Asia’s largest decacorns is set to trigger antitrust concerns. One source told DealStreetAsia that Gojek is seeking to pacify Indonesian regulators by seeking to sunset, or phase out, the Grab brand in Indonesia.
The Grab-Gojek deal will be on the same lines as Grab’s acquisition of Uber’s Southeast Asia operations in March 2018. The US-headquartered ride-hailing giant had exited the region in exchange for a 27.5 per cent stake in Grab. That stake, which has come down since the deal, is worth about $2.3 billion today, according to Uber’s Q3 2020 earnings disclosure.
That deal had also attracted the ire of regulators across Southeast Asia. Singapore had imposed a penalty on both Grab and Uber after concluding that their merger had driven up prices in the local market.
The Philippine Competition Commission had approved the merger in August 2018, with conditions related to pricing and service quality. Two months later, the watchdog imposed a nearly $300,000 penalty on Grab and Uber for violating the conditions.
Investors on both sides pushing for a deal
Merger talks between Grab and Gojek have gained steam over the last few months as investors from both sides have pushed for a ceasefire. Grab investor SoftBank, in particular, has stepped up pressure on the Southeast Asian firm to pursue a union with Gojek to stem its cash burn.
Grab has raised over $10 billion in funding from investors such as Tiger Global Management, Toyota Motor Corp and Microsoft. Gojek has collected over $5 billion in capital and counts Google, Tencent Holdings, KKR and Warburg Pincus among its shareholders. We wrote about Gojek’s top shareholders and investors in GoPay, its financial services unit, in our first unicorn report in September.
Grab and Gojek investors have also been worried about increasing competition from rivals such as NYSE-listed Sea Ltd, according to a recent Bloomberg report. Sea’s e-commerce unit Shopee and digital payments arm ShopeePay have been expanding rapidly across Southeast Asia, putting up a strong fight in markets such as Indonesia.