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Beijing opens antitrust investigation into Didi’s proposed takeover of Uber’s China unit

China’s commerce ministry said it’s investigating whether Didi-Chuxing Technology’s proposed takeover of Uber’s China business violates the country’s antitrust regulations.

The ministry will review the deal to protect fair market competition, as well as uphold consumer rights and public interest, the commerce ministry’s spokesman Shen Danyang said during a Friday press conference in Beijing.

If regulators find the deal to have violated antitrust regulations, they could force the companies to unwind the takeover, and face a fine of no more than 500,000 yuan, said Beijing Zhongwen Law Firm’s lawyer Wu Fei, citing the country’s laws.

“The worst situation is that the two car-hailing firms will go back to operate their own businesses individually if they are found to be in violation of China’s antitrust laws, and each pay a fine,” said Wu.

Didi’s August 1 proposal to acquire Uber’s China business would create the country’s biggest car-hailing service, with 1.35 million drivers operating in 360 of Chinese cities and towns. The combined business is valued at US$35 billion, according to a report by Caixin magazine, citing a person familiar with the deal.

As of August 1 when the takeover was announced, the commerce ministry had not received Didi’s application for approval to combine, Shen said.

Chinese antitrust regulators talked twice with Didi’s management, requesting information on the transaction and reasons why the company hadn’t applied for approval. They also asked Didi to submit relevant documentation to support the case, Shen said.

When the takeover was announced, Didi didn’t believe Uber’s China revenue met the threshold that warranted an antitrust review, the acquirer said last month.

Zhongwen’s Wu said the takeover is likely to be approved to go ahead.

“The Chinese government has been highly tolerant to such deals,” he said. “The investigation shows that China will support internet companies in a legal manner. The investigation also provides an opportunity for China regulators to explore ways to enforce antitrust laws amid the tide of mergers and acquisitions among IT companies.”

Simmons Simmon’s counsel Yang Xun said he doubts the merger can be approved to proceed and said the companies should apply for an exemption.

“The two companies involved are likely to break the nation’s antitrust laws in terms of revenue and market share,” Yang said. “The revenue threshold for China’s antitrust review is 400 million yuan, which can absolutely be reached by the companies, while Didi is already dominant in China’s ride-hailing market.”

Separately, Shen dismissed suggestions of McDonald’s Corp or Yum! Brands Inc quitting China’s market.

“Yum! proposed to spin off its China business and seek a separate listing, intending this to optimise the company’s capital structure and bolster its prospects,” he said. The company “plans to ramp up its China operations, which now account for about half of its worldwide business.”

McDonald’s is looking to sell its China business to a strategic investor to “facilitate its growth,” and will continue to hold shares in the business, he said.

“In the coming five years, McDonald’s will open 250 stores every year, and China is tipped to become its second largest market after the US, “ he said.

Additional reporting by Jennifer Li and Celine Ge