Proxy fight

Dai: he’s hacked off with Didi

One of the most expensive board fights in corporate history broke out last year, when US consumer goods maker Procter & Gamble tried to fend off activist investor Nelson Peltz from joining its board. Between the two camps, almost $60 million (some said $100 million) was mobilised to court shareholders. The 75-year-old hedge fund manager ended up winning a newly-added seat on P&G’s board.

Over in China, a costly power struggle between the management of bike sharing firm Ofo and its biggest shareholder Didi Chuxing, the country’s largest car-hailing app, began to simmer at roughly the same time last year. But in this case, Jack Ma’s internet giant Alibaba appears to have finally emerged as the big winner by seizing greater control over Ofo, one of the highest profile Chinese internet start-ups to have emerged in recent years.

Leading a consortium that included its affiliate Ant Financial and several Chinese venture capital firms, Alibaba invested $866 million in the cash-strapped Ofo in exchange for voting power on its board this month, according to local media source Deep Web.

The dockless bike operator did not disclose its updated valuation, nor its latest shareholding structure, although both Alibaba and Didi are key shareholders.

“At present it’s hard to tell who among the three parties is going to be more dominant on [Ofo’s] board of directors,” said the news portal, operated by Tencent. “But Didi’s concession of power is obvious. As Ofo gets closer to Alibaba, one possibility might be that Didi ends up being a purely financial investor in Ofo, with its commanding position ceded to ‘foreign’ strongman Alibaba.”

After several rounds of financing, Didi had built a 30% stake in Ofo and had two seats on its board by the end of July last year. While the five founding partners of the bike hiring app – including the 27 year-old CEO Dai Wei – were all on the board, key roles overseeing execution, finance and marketing were filled by managers from Didi.

“At the beginning Dai Wei welcomed these professional managers… but their rather supercilious attitude has irked Ofo’s founders,” a source told Deep Web, adding that their strategic differences had led to the ousting of three Didi-appointed managers last November. (Ofo denied the internal conflict and said the managers were merely on a holiday.)

The divide is said to be rooted in Didi’s desire to take Ofo under its wing in order to round off its suite of transport and delivery services. Conversely Dai has always wanted to maintain its independence. Coming into being through multiple mergers itself, it is speculated that Didi also wants to put together Ofo and its arch-rival Mobike – which is backed by Tencent – a plan that is not to Dai’s liking either (see WiC396)

Ofo has been thrust deeper into financial difficulties as its multi-city war with Mobike – fought through money-burning subsidies and promotions – escalated in the latter half of 2017. Various suppliers have revealed that Ofo had been lengthening its payment cycle as its cash reserves dwindled. According to Yixian, another Tencent-controlled website, Ofo only had about a month’s worth of cash left when Dai tapped Alibaba as his white knight against Didi.

Prior to the latest financing announced this week, Ofo had pledged 4.4 million dockless bikes to an Alibaba subsidiary for Rmb500 million on February 5 and an unspecified amount of collateral to another Alibaba subsidiary for Rmb1.27 billion ($200 million) a week later. But to cement its control over Ofo, Alibaba may next buy shares from Didi and limit Dai’s veto power, suggested Deep Web.

For Alibaba, the investment in China’s leading bike-sharing operator is part of its broader rivalry with Tencent. At the time being, Ofo’s weekly active penetration rate exceeds that of Mobike, according to Beijing-based analytics company Cheetah.

Alibaba may also push for more synergies between Ofo and Hellobike, its Shanghai-based peer that raised $350 million from Ant Financial in December. Offering further competition in the money-bleeding sector is Tianjin-based Bluegogo, that was resurrected with Didi’s financial aid in January.

At another level, the Ofo deal secures a major partner for Sesame Credit, the credit rating system developed by Ant Financial. They struck an agreement last year to let users with a credit rating of above 650 points unlock Ofo’s bikes without putting down deposits. Ofo said this week its users now constitute over 70% of Sesame’s 41.5 million uncollateralised borrowers, suggesting that Alibaba may see bike-sharing as more of a means for client acquisition.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.