Alibaba plans to raise $5 Bn through merging its food delivery units to fight Meituan

Chinese e-commerce giant Alibaba is all set to merge food delivery platform Ele.me and food and lifestyle firm Koubei to raise next round of investment to fight its rival Tencent-backed Meituan Dianping.

The largest Chinese Group is working on fundraising and planning to raise around $3-5 billion for the combined entity, a Reuters report quoted sources as saying. Koubei, founded in 2015, had a valuation of $8 billion at the end of 2017.

Once merged, the entity could be valued at around $25 billion.

The new unit would also include Alibaba’s Hema Fresh, a chain of cashless supermarkets offering fresh produce and food delivery, added sources. However, companies involved have not officially commented on the development.

Both Alibaba and Meituan are fighting for supremacy in China’s buoyant online-to-offline (O2O) market. Alibaba is strategically looking to club its complementary businesses in one platform to have an edge over Meituan.

The food delivery segment has recorded a hockey stick growth in China and the clout of the company rose with a ferocity that made Alibaba, in a fear of losing the opportunity, decide to enter the space through the acquisition route.

In April, Alibaba acquired Ele.Me at a whopping price of $9.5 billion.

The O2O space has been growing in China. Last year the value of O2O transactions jumped 72 percent to $146 billion.

In June, Ele.me and Baidu Waimai, which Ele.me acquired last year, have a combined 55 percent of China’s food delivery market in the first quarter compared with Meituan’s 41 percent, said a report by Chinese research firm iiMedia Research.

Meituan, which is valued at $30 billion, is planning to raise $4 billion in coming months. Its revenue rose to 33.9 billion yuan in fiscal 2017, sharply higher than the 12.99 billion yuan made in the previous year.

Both the Chinese giants, are also fighting the same competitive battle in India. They are keenly following Indian food space and have invested in them. After $200 million investment in Zomato, Tencent-backed Dianping along with Naspers (an early backer of Tencent) led a $100 million round in Swiggy in February.