Apple’s Cook Struck $1 Billion Deal With China’s Didi in 22 Days

Apple Invests $1B in China's Didi
  • Didi’s tie-up with Apple happened with "lightning speed"
  • Tim Cook first met with Didi on April 20 in California

The tie-up between Apple Inc. and Chinese car hailing app Didi started off with a joke.

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Didi President Jean Liu said on Friday that talks began less than a month ago when she stopped by to see Tim Cook at Apple headquarters in Cupertino, California. Any company named after a fruit “could achieve something big,” she jested during the April 20 meeting. Didi’s legal name, Xiaoju Kuaizhi Inc., means “little orange,” she explained.

The $1 billion deal was announced just 22 days later. Liu, a former Goldman Sachs Group Inc. banker, frequently meets with tech executives when she visits the U.S., according to a person familiar with the matter. She didn’t go into the meeting to ask for capital, but rather to discuss the China market and opportunities for cooperation, the person said.

“The whole deal closed in lightning speed," Liu said. “We were very impressed by Tim. He’s an amazing, iconic leader.”

There’s much to gain on both sides. Didi, battling with Uber Technologies Inc. for supremacy in China, will get additional capital to expand into new cities, recruit drivers and market to potential customers. The Apple investment will bring the amount Didi is raising in its current round of funding to $3 billion, people familiar with the matter said, declining to be named because the matter is private.

Apple gets a potentially lucrative investment and wins powerful allies in one of its most important markets. Didi is backed by China’s two largest Internet companies, Alibaba Group Holding Ltd. and Tencent Holdings Ltd. They could help Apple market Apple Pay and other services, as well as giving it experience in transportation as it weighs an entry into automobiles.

Signing Apple as a strategic investor is partly aimed at thwarting investors from putting money into Uber, one of the people said. Didi is targeting a valuation of $26 billion, which would make Didi the fourth-most valuable startup in the world after Uber, Xiaomi Corp. and Airbnb Inc., according to the research firm CB Insights. For a look at five things investors should know about Didi, click here.

Didi has been waging battle with Uber ever since it was created early last year through the merger of startups backed by Tencent and Alibaba. The two sides were engaged in brutal competition with each other and rival apps before deciding to combine, in part to repel the U.S. startup. The combined company, then known as Didi Kuaidi, held a near monopoly on taxi-hailing and a substantial majority of private-car bookings.

In May of last year, Didi announced it would give away 1 billion yuan ($153 million) in free rides, the first salvo in a price war with Uber that would cause both sides to burn through cash. Uber refused to back down. In June, Chief Executive Officer Travis Kalanick wrote a letter to investors, explaining the strategic importance of the market and pledging to invest $1 billion in the market that year alone.

Over the summer, both sides pushed to attract the cash necessary to finance their operations. Uber raised about $1.4 billion for its China operations, including from search giant Baidu Inc. Didi ended up raising about $3 billion from Alibaba, Tencent, Japan’s SoftBank Corp. and Ping An Insurance (Group) Co.

The tricks haven’t been limited to price competition. In August, Uber complained it had been blocked from using WeChat, China’s most popular messaging service. WeChat is owned by Didi investor Tencent.

Didi, meanwhile, recruited allies. In December, it entered into a four-way alliance with ride-sharing services that compete with Uber, including Lyft Inc. in the U.S.

As Liu and her colleagues entered the new year, they seemed determined to deal Uber a knockout blow. Didi began raising another round of money and its executives were clear about their goals.

“We will be the last one standing,” Stephen Zhu, vice president of strategy, said in April. “Why is our competitor consistently 20 to 30 percent cheaper but still failing to gain market share? It’s because the customer experience is not as good, their network is much less than ours.”

Didi was aiming to raise more than $1.5 billion in April, people familiar with the matter said at the time. The target was lifted to about $2 billion earlier this month. Now it is raising $3 billion and gaining a powerful ally, putting enormous pressure on Uber in China as it tries to compete in other markets around the world.

After Liu and Cook’s initial meeting, lieutenants on both sides worked out specifics. "The working team from both Didi and Apple have shown great execution skills, very professional,” she said during the conference call on Friday.

Liu, who is also the daughter of the founder of the world’s largest personal computer maker Lenovo Group Ltd., said the Chinese startup is now in discussions on working with Apple in sectors including technology, marketing and products. "It feels very natural to work with Apple together because philosophically on a company level we share a lot in common," she said.

The iPhone maker will help Didi build up a ride-sharing platform that already handles more than 11 million rides a day and serves about 300 million users across China. Didi operates in 400 Chinese cities with 14 million registered drivers, offering services from taxis and private cars to social ride sharing and test driving. “It’s only natural that two fruit companies team up,” Liu said.

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