Alibaba to merge its Chinese food delivery units

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Alibaba Group Holding Limited is looking forward to unifying its food delivery units and raise funds for the incorporation.

The merger aims to compete with other food delivery giants like Meituan Dianping which is a subsidiary of Tancent Holdings Limited.

According to the reports, the merger will include Alibaba’s food delivery platform, Ele.me and food and lifestyle services firm, Koubei. A Hong Kong based Alibaba task force plans to build funds between $3 billion to $5 billion in their fundraising campaign for the combined entity, which will value the incorporation up to $25 billion.

Mo Jia, a Shanghai-based research analyst said, “Alibaba and Meituan are the two main companies that can offer comprehensive O2O services.” Mo further added, “Alibaba’s three units are complementary to each other and it has a strategic logic to merge them into one platform to compete with Meituan.”

The tremendous rise in online to offline (O2O) transaction

The value of O2O transactions has grown rapidly since last year. According to Chinese research firm Analysys, China jumped 72% in O2O transaction which is valued at $146 billion.

In another research report by iiMedia, a Chinese research firm, Ele.me and Baidu Waimai, which was acquired by Ele.me a year ago, held a combined 55% of China’s food delivery market in the first quarter compared with Meituan’s 41%.

On the other hand, Tencent Group’s Meituan Dianping which was valued at $30 billion in a fundraising round last year, also plans to raise more than $4 billion in Hong Kong over the coming months.

Alibaba is also joining hands with other food giants to increase its dominance in the Chinese food market. Last month, Ele.me and Starbucks Corp collaborated to deliver Starbucks coffee in China.

Last year, Koubei raised a huge amount of $1.1 billion in a funding round. Koubei, founded in 2015 as a joint of Alibaba Group and Ant Financial is a local commerce platform which provides information and services related to restaurants, house renting and buying, and traveling.