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The Potential of Gojek and Grab Mergers Getting Closer

The Potential of Gojek and Grab Mergers Getting Closer

On-demand service providers, Gojek and Grab, are reportedly continuing talks on merger plans amid the corona pandemic. Analysts assess that this corporate action can accelerate the efforts of the two decacorns to reap profits.

A Financial Times source who is aware of the matter said the discussion arose when Gojek and Grab competitors suffered losses due to restrictions on activities outside the home during the coronavirus pandemic. However, the source did not mention the intended competitor.

The news of the Gojek and Grab merger has actually been blowing since last February. However, a Financial Times source said that talks had stalled because Grab’s main investor, SoftBank, opposed the plan.

The Potential of Gojek and Grab Mergers Getting Closer

SoftBank founder and CEO Masayoshi Son believes that the ride-hailing industry will grow significantly. In addition, companies with lots of cash will dominate. However, the source said that Son realized that Gojek was a formidable opponent for Grab.

Now, Son is said to be supporting the talks. “The stress of Covid-19 and concerns over the global ride-sharing business model are pressuring companies to agree to deals,” the Financial Times was quoted as saying, Sunday (13/9). This corporate action is considered to be able to accelerate the two startups making profits.

Roshan Raj, a partner at a management consulting firm in India, said the two decacorns increased driver-partner commissions and reduced discounts for customers before the pandemic. “Covid-19 materially disrupts this trend,” he was quoted as saying in the Financial Times.

Gojek – Grab “Closeness” Indicators

The plan to merge Grab and Gojek is reportedly the idea of ​​SoftBank investor, Elliot Management Corp. However, SoftBank denied the rumors. Meanwhile, one of the Grab investors said that discussions regarding the merger were held for two years. The discussion has intensified in recent months.

“The power at play here is higher than what Grab or Gojek wanted – or didn’t want. This is about a number of long-term influential shareholders in both companies who want to stem losses or find ways to get out of their investments,” said a source to the Financial Times, last March (8/3).

On the other hand, there are some indications of “closeness” between Gojek and Grab. First, the central role of Pandu Sjahrir, Commissioner of Gojek since 2017 until now.

The Potential of Gojek and Grab Mergers Getting Closer

Pandu, who is also President Commissioner of SEA Group Indonesia, was said to have played an important role in preparing for the meeting between SoftBank CEO Masayoshi Son and President Joko Widodo (Jokowi) in July last year.

Quoted from Sindonews, Pandu has been preparing for the meeting since January 2019. Second, the similarities of the main investors. The Japanese corporate giant, Mitsubishi, is also investing in Gojek and Grab.

Based on Crunchbase data, Mitsubsihi UFJ Financial Group injected capital in Grab in February. Then Mitsubishi Corporations, Mitsubishi Motors, Mitsubsihi UFJ Financial Group, and Visa invested in Gojek in March.

Merger Constraints faced by Both Parties

On the other hand, a technology analyst at Fitch Solutions, Kenny Liew, sees the regulator will not approve the merger agreement between the two giant startups. “This is considering that (the number) of jobs will likely be cut,” he said.

The Business Competition Supervisory Commission (KPPU) also said that it was possible to reject the Gojek and Grab merger plans. “If two business actors control the dominant market share, KPPU has the potential to be rejected,” said KPPU Commissioner Guntur Syahputra, last March (11/3).

The Potential of Gojek and Grab Mergers Getting Closer

This consideration refers to article 28 of Law (UU) Number 5 of 1999 concerning the prohibition of monopolistic practices and unfair business competition. Business actors are prohibited from merging or consolidating business entities which may result in monopolistic practices and / or unfair business competition.

KPPU will assess the size of the market concentration of the two companies planning a merger or acquisition. The assessment is based on the Herfindahl-Hirschman Index (HHI). “Of course, the value will be seen after the merger or acquisition occurs,” said Guntur.