Analyst questions core business of a possible combined company
China's leading group-buying site meituan.com has reportedly entered into merger discussions with dianping.com, a Chinese Yelp-like review website, with more details expected to be revealed soon.
The two companies have agreed on the structure of the proposed deal, news portal huxiu.com reported Wednesday.
Like some Internet giants, the two companies reportedly will adopt the variable interest entity structure, which gives Chinese companies access to foreign capital.
The PR representative of meituan.com who asked not to be named told the Global Times Wednesday that the company is not aware of the possible deal.
However, an unnamed person close to the companies' senior executives was quoted by news portal 163.com on Wednesday as saying that the merger deal will be announced in three days, and the new company is estimated to be worth $17 billion.
The combined company is going to become a strong competitor to Baidu Inc's online-to-offline (O2O) business, according to media reports.
It will use the co-CEO governance structure and finish a new round of fundraising of about $2 billion to $3 billion, said media reports.
Meituan.com is backed by Chinese Internet giant Alibaba Group Holdings while dianping.com has been invested in by another Internet mammoth, Tencent Holdings.
Media reports also said that the company completed a round of fundraising of $700 million in January, which increased the site's valuation to $7 billion.
While specializing in localized consumer services such as movie tickets and restaurant bookings, Meituan has been actively expanding in O2O services.
For example, it started an O2O food delivery platform, waimai.meituan.com, in November 2013 and has been seeking to improve its logistics system.
Still, a person close to Shanghai-based retail and restaurant review site dianping.com told the Global Times Wednesday that those two are not going to reach a merger deal, as the company still intends to go public itself in 2016.
Liu Dingding, an analyst from Beijing-based Internet intelligence agency Sootoo, also told the Global Times on Wednesday that the gross merchandise volume of meituan.com has largely passed the volume of dianping.com, which makes the merger deal unlikely.
"The only possibility is that meituan.com purchases dianping.com. However the company has to figure out how to operate the review site's core business," said Liu.
Though the review site has been rapidly stabilizing its customer base, it generates fewer transactions compared with the O2O services websites like meituan.com and Shanghai-based tech startup ele.me, Liu noted.
"If meituan.com bought dianping.com to compete with Baidu's O2O services, it would make sense that the combined company focuses more on O2O services such as food delivery," he said.
In China's O2O food delivery services industry, meituan.com had 41 percent of the total market share in the first half of 2015, Beijing-based market consultancy Analysys International said in report in August.
Meanwhile, ele.me was ranked as the second-biggest company in the industry, with 39 percent of the market, the report said. Also, ele.me has reportedly started merger discussions with meituan.com and dianping.com, according to 163.com.
However, the company's PR representative, who refused to be named, told the Global Times on Wednesday that he does not have knowledge of the matter.
China's O2O food delivery market has been booming.
According to the report, in the second quarter of 2015, transactions reached 8.2 billion yuan ($1.3 billion), representing an increase of 90 percent compared with the previous quarter.
