Dianping Holdings and meituan.com, China's two largest online-to-offline (O2O) services providers, on Thursday announced that they have formed a new company that will become "a leading platform in the Chinese O2O sector."
In response to the move, China's top search engine Baidu Inc, the operator of another O2O services provider Baidu Nuomi, said late on Thursday that it will not be challenged by the new firm.
In a joint statement, China's leading group-buying website Meituan and top business review site Dianping said the new company will adopt a co-CEO governance structure, with Meituan CEO Wang Xing and Dianping CEO Zhang Tao becoming the new company's co-CEOs.
The former rivals said that they would retain their respective personnel management structures, brands and independent business operations.
Other details including the name of the new company and financing were not announced.
But the combined company could be worth as much as $20 billion, and it could raise $2 billion to $3 billion in the first round of fundraising, according to media reports.
Media also said the move could pose a serious threat to Baidu Nuomi, run by Baidu, which announced in July that it would invest as much as $3.2 billion in Nuomi over the next three years.
Baidu shrugged off media claims, saying that it was the new company that would be threatened by Baidu Nuomi.
"We believe that this merger is an extreme measure that shows just how seriously Meituan and Dianping view the threat from Baidu Nuomi," Baidu said in a statement e-mailed to the Global Times on Thursday.
Baidu said that the difficulties Meituan and Dianping have had in raising money and the rapid erosion of their respective market positions in the face of Baidu Nuomi's growth drove them to the merger.
Baidu also pointed to its performance in the O2O market as evidence that it will be strong in the face of any competition. It said Baidu Nuomi has been gaining about 2 percentage points a month in market share by gross merchandise volume, while Meituan's market share has been declining.
Liu Xuwei, an analyst with market research firm Analysys International, agreed overall with Baidu's assessment.
"I think the major point behind this cooperation is to raise capital," Liu told the Global Times Thursday, noting the overall capital market is in bad shape.
Liu also noted that Meituan and Dianping are facing strong competition in an increasingly competitive O2O field with major players such as Baidu Nuomi.
But Baidu Nuomi will also face pressure from the Meituan-Dianping venture, he said.
Liu believes Meituan and Dianping's new venture will help them to gain profits, given the two companies' huge market share and the "enormous" market for O2O businesses in China.
