Grab and Gojek Has the potential to become the most complicated merger in Southeast Asia

Throughout 2020, rumors about merger antara Grab and Gojek mediated by Masayoshi Son from SoftBank has resonated and become the subject of conversation.

If the two companies become one entity, it will be a consolidation of Southeast Asia's highest-rated technology company — a regional move with potential global implications. It would also be the biggest plot twist for the regional internet economy, given that the two companies have been in fierce competition for years. While investors appear eager to bring the two companies together, a possible merger raises questions about market concentration and its impact on consumers and driver-partners.

Well Grab and Gojek investors are of great interest. in February, Grab raised USD 856 million from Japanese investors. a month later, Gojek raised USD 1,2 billion in a Series F round from an undisclosed investor. Then, in June, Facebook and PayPal also poured money into super app this Indonesian. The details of the agreement were not disclosed, but according to Crunchbase, Gojek managed to raise USD 375 million from American investors. And in August, Grab pocketing USD 200 million from South Korean private equity firm Stic Investments, then Gojek raised another USD 150 million from Indonesian telco company Telkom in November.

In recent months, Son has reportedly been cast as kingmaker and put more pressure on the two Southeast Asian giants to merge and operate under one umbrella. Recent developments show that Grab and Gojek have resolved most of their disputes and mapped out the structure in which one of the co-founders Grab Anthony Tan will be CEO of the combined entity, acting as executive Gojek will continue to do business in Indonesia under the brand Gojek, according to reports Bloomberg.

Even so, fine Grab nor Gojek denied the news about the potential merger.

Starting from a transportation startup, Grab and Gojek have grown their respective businesses to span multiple verticals. That growth required a splash of funds and the company remains unprofitable today.

Last year, Grab and Gojek demonstrate their intent to achieve profitability and go public — all part of a plan to turn a profit for investors like SoftBank. Pressure increased this year due to the COVID-19 pandemic, when transactions for several operating verticals Grab and Gojek plummeted.

Challenges on payment services

The most difficult step in a merger will likely be merging payment services Grab and Gojek. In Indonesia, Grab working with Ovo as its official payments partner, temporarily Gojek operates its own e-wallet platform, GoPay. Grab recently led a USD 100 million investment in LinkAja, making him a minority shareholder in the state-owned platform. Ovo and Dana have long been rumored to be in discussions about a possible merger to prevent GoPay from expanding its lead on the payments platform.

Unlike vertical Grab and Gojek others, payment services are subject to strict restrictions from the central bank, Bank Indonesia (BI).

“If you consider the potential bond between Ovo and Dana, and further consolidation between Grab and Gojek, Indonesia's top three platforms — GoPay, Ovo, and Dana — will be effectively owned by the same group, which Bank Indonesia currently bans, said Joel Shen, a corporate attorney with Withersworldwide specializing in mergers and acquisitions (M&A) and technology in Southeast Asia.

BI regulations are mandatory and suspension, which means Grab and Gojek requires permission from the central bank before their payment services can be interlinked, Shen added.

Well Grab and Gojek is a very influential company in Indonesia. Co-founder Grab Anthony Tan and Masayoshi Son from Softbank are known to have good relations, as well as access to President Joko Widodo and the Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan. Meanwhile, one of the founders Gojek Nadiem Makarim serves as Minister of Education and Culture in Jokowi's cabinet.

"I can see it can work in one of these two ways," Shen said. “First, they used political influence within the Indonesian government to get BI approval, and then they joined. Second, they are separating the payments business from other verticals, so they will combine the transportation, food delivery, and logistics businesses, but the payment platforms will remain separate and not merged.”

It's too early to tell what the final outcome will be, because Grab and Gojek has not yet completed the commercial portion of the transaction. Nonetheless, Shen believes payment platforms will present the single most difficult regulatory hurdle in merging to form a single business entity.

Investors gather as one

Grab and Gojek backed by giant investors, and their union can create unexpected convergences among a multitude of investors. The entity that has provided a check for Gojek including Google, Tencent, Facebook, PayPal, Visa, and JD.com. Whereas Grab backed by Softbank, Uber, and Didi Chuxing. Alibaba was recently reported to be in talks to spend USD 3 billion in Grab; Although this is not confirmed by any of the companies, Grab signed a partnership with Alibaba Lazada in Vietnam last month, signaling possible progress in discussions.

“If you look at the comparison table between Grab and Gojek, we will look at very unpredictable competitors like Alibaba and Tencent, which is an unusual situation. It will be a very large and crowded table if the merger does happen," said Shen.

An investor familiar with the situation told KrASIA that the merger would be profitable from a stakeholder perspective. Grab and Gojek need to urgently focus on sustainability to rationalize their assessment, he said. And the two companies have a new common enemy: Sea Group has emerged from the pandemic with skyrocketing numbers.

Regulation can protect merchant and consumers

Investors who spoke to KRASIA it also says the merger will hurt users, drivers, and merchant partners Grab and Gojek. "They [Grab and Gojek] will definitely reduce incentives and bargaining power because it will be monopolized by the merging entity,” said the person.

If a merger occurs, then the user Grab and Gojek can say goodbye to corporate discount promotions, as there will be no significant or direct competition in the arena. New entities can also “arbitrarily set prices”, said Tulus Abadi, Chairman of the YLKI Indonesian Consumers Foundation, to KrASIA.

For now, the driving partners of the two companies are against a merger between Grab and Gojek. The Indonesian online motorbike drivers association, or Garda, said they would protest if the company went ahead with the merger.

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"We are worried that this mega-merger will lead to the termination of the driver-partners for reasons of company efficiency," Garda chairman and spokesman Igun Wicaksono told reporters. KRASIA. The association hopes the government will step in and stop the consolidation.

Regulators can play a stronger role by tightening rules regarding pricing and trader platform relationships. The Singapore Competition and Consumer Commission (CCCS), for example, is restricting movement Grab after the company's acquisition of Uber's Southeast Asia operations in March 2018, so Grab cannot change rate plans freely or hold a monopoly on drivers.

According to an unnamed investor who spoke to KrASIA, companies can avoid market monopolies by divesting parts of their business, such as transport or food delivery operations. "A 'separation' between groups may be necessary to maintain competition," he said.

-This article was first released by KRASIA. Re-released as part of a collaboration with DailySocial