Cab Capitalism

(Bloomberg) -- Jean Liu has won and Travis Kalanick has, well, not quite lost.

Kalanick, the chief executive of Uber, has taken a pragmatic step and decided to merge the company's China operations with local ride-hailing rival Didi Chuxing, run by Liu. The valuation of the combined group would be $35 billion, people familiar with the matter told Bloomberg News.

In what amounts to the understatement of the year, Kalanick summarizes his reason for the move in a blog post as such:

"Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there."

Uber has lost more than $2 billion in China, the people familiar said. As part of the deal, investors in Uber China, an entity owned by San Francisco-based Uber and Baidu among others, will receive a 20 percent stake in the combined company. That share swap makes a nice $7 billion windfall for Uber China shareholders, but alas, it's not a cash payout.

Even more spectacular for Uber is that Didi will make a $1 billion investment in the U.S. firm. That's cash Uber needs to fund its global expansion. (As an aside, considering Apple bought a stake in Didi, this transaction in theory now makes Apple a shareholder of Uber.)

The deal is well timed, probably deliberately so. Beijing just recently unveiled new rules legalizing ride-hailing services, dispelling any lingering regulatory uncertainty.

Last month, I wrote about how a truce would have ramifications beyond China. Didi's tie-ups overseas with the likes of Lyft, Olacabs and Grab make it a global threat, and one Kalanick needs to tackle quickly if he's to bring an end to the massive ride-hailing socialism

Kalanick also writes in the aforementioned blog post that "as an entrepreneur, I've learned that being successful is about listening to your head as well as following your heart."

In actual fact, it's investors Kalanick has started listening to. A sure sign socialism will end, and capitalism can begin.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net.