After a bruising two-year battle, ride-hailing firm Uber is selling its China operations to bigger local rival Didi Chuxing in a deal that will give Uber a one-fifth stake in Didi.

A taxi driver uses the Didi Chuxing app while driving along a street in Guilin, China.
A taxi driver uses the Didi Chuxing app while driving along a street in Guilin, China.

Ride-hailing firm Didi Chuxing said on Monday it will buy Uber's China operations in a deal that will give Uber a stake in the company and end a two-year battle between the two.

The deal is valued at $35 billion according to a source familiar with the matter who didn't want to be named before the deal was made public.

It will combine Didi's $28 billion worth and Uber China's $7 billion valuation.

Didi confirmed the agreement on its official microblog, but gave no valuation.

San Francisco-based Uber Technologies will receive a 5.89 percent stake in Didi, but will have disproportionate "economic interests" of 17.7 percent with another 2.3 percent interest going to Uber China shareholders.

According to Didi's post, Uber will continue to operate independently.

"Cooperating with Uber will give the entire mobile travel industry a healthier order and a period of a higher level of development," it said.

Uber CEO Travis Kalanick will join Didi's board, while Didi Chuxing chief Cheng Wei joining the Uber board.

In an internal message to staff, Kalanick wrote, "Sustainably serving China's cities, and the riders and drivers who live in them, is only possible with profitability. This merger paves the way for our team and Didi's to partner on an enormous mission, and it frees up substantial resources for bold initiatives focused on the future of cities - from self-driving technology to the future of food and logistics."

He said Uber was operating in more than 60 cities in China and serving more than 40 million rides a week.

Challenging China

China has been a challenging market for Uber, which has been burning through more than $1 billion a year in a price war with Didi.

Uber is profitable in the United States, Canada and about 100 other cities.

"It makes huge sense. Uber faces an uphill task in China especially since Didi is multiple times larger by transaction value and city coverage," said Hong Kong-based Richard Ji, co-founder of All-Stars Investment Ltd, which manages about $900 million and owns Didi stock.

"This will lead to favorable outcomes for both companies. The biggest benefit is cost savings, they no longer have to give out subsidies to drivers and passengers. It will give pricing power as the new entity will become the dominant player. That means profitability will come sooner than later," he added.

Under the deal, Didi will also invest $1 billion in Uber, which operates globally outside China, the source said, adding to a series of deals and joint ventures Didi has struck in recent years.

Source: Reuters