SINGAPORE: The union of Gojek and Tokopedia seemed almost inevitable after rumors of an intermittent marriage between two of Southeast Asia’s biggest rideshare companies, namely, Grab and Gojek, were finally quashed.
The deal between Grab and Gojek reportedly fell apart because neither could agree on the control each company would have in the merged entity. Fears that a merger might fail to pass regulatory scrutiny due to their already dominant position in ridesharing were also growing.
Then there was also the not insignificant question of who would run a Grab-Gojek entity. While Grab is the larger of the two companies, Gojek is arguably better positioned in Southeast Asia’s most populous country, Indonesia.
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Following the breakdown in talks, Grab acted swiftly by accepting a marriage proposal from one of Altimeter Capital’s Special Purpose Acquisition Companies (SPACs), Altimeter Growth Corp.
The merger could value the Singapore-based logistics company at around US $ 40 billion, when it finally goes public on the Nasdaq stock exchange.
LEFT AT THE ALTAR
This left Gojek abandoned in search of a marriage partner to compete effectively in a rapidly changing environment for tech companies. Therefore, a merger of Gojek and Tokopedia may well give the two companies enough leverage to compete with their larger peers.
On their own, Gojek, worth US $ 10.5 billion, and Tokopedia, worth US $ 7.5 billion, are, by comparison, relative servants in a country of Asian tech giants. . Gojek’s main rival Grab is expected to be worth four times as much as the Indonesian ridesharing company after its initial public offering (IPO).
Sea Limited, which competes with Tokopedia in e-commerce, is valued at over US $ 134 billion, 17 times its Indonesian rival.
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Thus, a merger of Gojek and Tokopedia is not only a marriage of convenience but an imperative for both companies. But this union is far from being concluded. It still needs shareholder approval.
SUM OF PARTS
While the merger is only exploratory, it marks a major milestone in reaching a deal that would create another giant Southeast Asian tech company. On paper, the combination of Gojek and Tokopedia, renamed GoTo, could be worth around US $ 18 billion.
This, however, would still be much smaller than Grab or Sea Limited.
Gojek shareholders would own around 58% of the new entity, with Tokopedia controlling the rest.
The new company will have ridesharing operations through Gojek and e-commerce operations through Tokopedia. GoTo will also provide financial services through Dompet Karya Anak Bangsa, which is already 22% owned by Gojek’s payments and financial services arm, GoPay.
A TANGY WEB
Financial services could be enhanced by connecting Tokopedia with digital payment services, OVO. But that could pose a problem for GoTo on several fronts.
First, Indonesia’s banking regulator, Bank Indonesia, may have a grim view of the union, if the combination of GoPay and OVO results in a monopoly in the digital payments space.
That said, Tokopedia could anticipate any objection by selling its stake in OVO to Grab, which already has ties to the digital payments company. From a regulatory point of view, elimination would be prudent.
But from a strategic point of view, it makes as much sense as handing over your bank card and PIN to a rival. It could strengthen Grab’s hand in a battle for the underbanked in Indonesia, who are estimated at 83 million people, or one-third of the country’s population.
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Meanwhile, Sea Limited is also considering the possibility of providing financial services to 175 million internet users in Indonesia by purchasing Indonesian lender Bank Kesejahteraan Ekonomi. With over $ 8 billion in cash at her disposal, Sea has abundant firepower and is a force to be reckoned with, albeit a late entrant.
There is already speculation that the merged entity, GoTo, could possibly attempt a public listing through a SPAC. Gojek co-CEO Andre Soelistyo, who is expected to lead the merged company, expects GoTo to be valued at $ 40 billion, should that happen. That’s more than double the current value of the two companies on paper.
This would imply that the two companies expect to generate significant synergy from the merger. This is not an unreasonable assumption given that both companies count Google and Temasek among their shareholders according to press reports.
These two investors, along with another strategic investor, Tencent, have very deep pockets for GoTo to expand its services. Other investors include PayPal and Facebook, which has more than 130 million users in Indonesia.
While Gojek’s roots are in the running, and Tokopedia’s strong point is e-commerce, the combined entity could be seen as a potential super app. In other words, GoTo could be a complete platform for everything from ridesharing to food delivery, digital banking to e-commerce and mobile payments.
As it stands, the two companies operate largely in independent markets. There is very little overlap except in areas such as digital finance.
There is a sense of urgency for both to expand their range of services to achieve super app status before it’s too late. Of course, the two companies could, if they wished, develop new services themselves from scratch.
READ: Comment: Why Grab is in such a rush to be listed
However, it might be too slow in the rapidly changing tech space.
After all, why would Gojek even consider developing an e-commerce platform when there is a ready-made player in the market? Likewise, why would Tokopedia even consider switching to logistics when Gojek is already a major food transport and delivery operator?
Any attempt at internal development is not guaranteed to achieve the desired end result, while a merger means risks are shared, while increasing and reaping efficiency benefits alongside current market dominance. in their verticals.
It could be a win-win for both companies. Tokopedia can immediately access Gojek’s car and driver network to satisfy last mile delivery of packages to customers. Gojek’s payment service GoPay could use e-commerce data to determine customers’ creditworthiness.
WHAT COULD GO WRONG?
This merger should have happened a long time ago, when the two companies could have united in a position of strength. They are two local Indonesian companies that have successfully used technology to connect millions of people living on thousands of separate islands.
READ: Comment: Gojek-Tokopedia merger has ramifications for regional unicorns, including Grab and Sea
The question for both companies is whether local knowledge is ever sufficient to thwart attempts by foreign rivals who have plenty of money at their disposal to topple the incumbents.
According to Statista, Shopee has overtaken Tokopedia as Indonesia’s most visited e-commerce site. So local knowledge and the first-mover advantage mean very little in an increasingly digital world.
While marriage makes sense on many levels, it could be too much, a little too late. Worse yet, it could be about getting married in a hurry and repenting at your leisure.
David Kuo is the co-founder of The Smart Investor and previously CEO of Motley Fool Singapore.