Ride-hailing firm Didi Chuxing will buy Uber's China operations in a deal that will give Uber a stake in the Chinese company and end bruising competition between the two rivals.

 

The deal is valued at $35 billion (232.5 billion yuan), according to a source familiar with the matter who didn't want to be named before the acquisition was made public. Before the deal, Didi was valued at $28 billion and Uber China was valued at $7 billion. Didi confirmed the agreement on its official microblog, but gave no valuation.

 

San Francisco-based Uber Technologies will receive a 5.89 percent stake in Didi -- but will have receive disproportionate "economic interests" of 17.7 percent with another 2.3 percent stake going to Uber China shareholders.

 

Uber will continue to operate independently, Didi said in the microblog. "Cooperating with Uber will give the entire mobile travel industry a healthier order and a period of a higher level of development," it said.

 

Uber CEO Travis Kalanick will join Didi's board, while Didi Chuxing chief Cheng Wei will join the Uber board.

 

"Sustainably serving China's cities, and the riders and drivers who live in them, is only possible with profitability," Kalanick said in an internal message to staff viewed by Reuters. "This merger paves the way for our team and Didi's to partner on an enormous mission, and it frees up substantial resources for bold initiatives focused on the future of cities -- from self-driving technology to the future of food and logistics."

 

He said Uber was operating in more than 60 cities in China and serving more than 40 million rides a week.

 

Challenging China

China has been a challenging market for Uber, which has been burning through more than $1 billion a year in a price war with Didi. Uber is profitable in the United States, Canada and about 100 other cities.

 

"It makes huge sense. Uber faces an uphill task in China especially since Didi is multiple times larger by transaction value and city coverage," said Hong Kong-based Richard Ji, co-founder of All-Stars Investment, which manages about $900 million and owns Didi stock.

 

"This will lead to favorable outcomes for both companies. The biggest benefit is cost savings, they no longer have to give out subsidies to drivers and passengers. It will give pricing power as the new entity will become the dominant player. That means profitability will come sooner than later," he added.

 

Under the deal, Didi will also invest $1 billion in Uber, which operates globally outside China, the source said, adding to a series of deals and joint ventures Didi has struck in recent years.

 

Analysts said Didi's latest move is a signal of its readiness to step beyond its home market.

 

"This clearly shows Didi's global ambitions and its desire to work together with Uber to tap Chinese travelers, who are going out in big numbers. There's a possibility the two could work together in other markets," All-Stars Investment's Ji said.

 

Didi said in its posting it will look to expand its international business and enter markets such as Hong Kong, Taiwan, Macau, Japan, South Korea, Europe and Russia.

 

Didi -- created last year from a merger of two firms backed respectively by e-commerce giant Alibaba Group and social network firm Tencent -- has invested $100 million in Lyft, Uber's main rival in the United States.

 

It has also formed an alliance with Lyft, India's ride service Ola and Southeast Asia's ride-hailing startup Grab to better compete with Uber's global dominance.

 

The deal is the latest sign of a global Internet or technology company struggling to break into China's cut-throat market, where local entrepreneurs have built formidable businesses, partly helped by a supportive government.

 

All of China's technology heavyweights will be stakeholders in Didi, as Uber shareholder Baidu will gain a stake. Apple Inc. recently made a rare $1 billion investment in Didi.

 

China last week issued guidelines that establish a long-awaited framework for the booming ride-hailing industry and remove uncertainty for firms such as Didi and Uber.