Opportunities and Challenges of Merger between Grab and Gojek

Grab and Gojek are reportedly reaching an agreement to merge their businesses or merge. If so, this would be the marriage of the two largest technology companies in Southeast Asia. Quoting the Bloomberg page, Thursday (3/12/2020), both Grab and Gojek began to soften with differences of opinion, even though some parts of the agreement still need to be negotiated.

The final details of the deal are being worked out by the most senior leaders in both companies, with the participation of Masayoshi Son of SoftBank Group Corp. and the main investor of Grab.

The source revealed that under a structure with substantial support, Grab co-founder Anthony Tan will become the CEO of the joint entity, while Gojek executives will run a new joint business in Indonesia under the Gojek brand.

“The two companies can be run separately for a long period. The combination ultimately aims to become a public company,” said one source.

Regarding the news of the merger, representatives of Grab, Gojek, and SoftBank declined to comment. However, the deal requires regulatory approval and the government may have antitrust concerns about the ride-hailing company merging.

Valuation will Reach Hectocorn Level if Both Merger

If the merger happens, the valuation of both is estimated to reach US$ 72 billion or around IDR 1,017 trillion in 2025. Meanwhile, the combined annual income of the two is predicted to be US$ 16.7 billion or around IDR 236.1 trillion.

Based on CB Insights data, Grab’s valuation is around US$ 14 billion and Gojek is currently US$ 10 billion. Nila said that Gojek’s business fundamentals are getting stronger, including during the corona pandemic. Core services have already scored a positive contribution margin in 2020.

Its gross transaction value (GTV) has grown 10% to US$ 12 billion or IDR 170 trillion since the beginning of the year. Meanwhile, GoPay transactions increased 2.7 times annually as of October. The compny will continue to prioritize sustainable growth to provide the best service to users and partners.

Meanwhile, Grab recorded that its income reached 95% of the level before the outbreak of the coronavirus. This Singapore-based Decacorn claims to be on the right track to making a profit. One of the points agreed upon was forming a joint company, which would focus on taking the floor on the stock exchange and becoming a technology giant in Southeast Asia.

Grab CEO Anthony Tan is said to be leading this business entity. If the merger is realized and following Tech In Asia’s calculations, the status of the joint venture company Gojek and Grab is close to a hectocorn or a valuation of more than US$ 100 billion.

That means the combined valuation of the two decacorns is approaching social media developer TikTok, ByteDance, and ride-hailing company in China, Didi Chuxing.

Merger Challenges for Both

The merger between both companies is getting closer. These two decacorns are said to complete the final details of the merging process. However, this process is not without challenges.

One of the challenges is the regulation related to antitrust. When it acquired Uber’s operations in Southeast Asia in 2018, Grab was fined by the authorities in Singapore and the Philippines for being proven monopoly.

Commissioner for the Supervision of Business Competition (KPPU) Guntur Syahputra said the merger of the two would make the market more concentrated. “One of the bases for our consideration in assessing the notification is its effect on market concentration,” he said, Friday (4/12).

KPPU can give approval or rejection of corporate actions on merger acquisitions that meet the limitations. It refers to the law concerning the prohibition of Monopolistic Practices in Indonesia. Even so, Guntur has not received a report regarding the Gojek and Grab merger plan.