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Business deals

Indonesia's Gojek in merger talks with Tokopedia to battle Sea

Superapp developer seeks new partner after talks with Grab hit logjam

Gojek and Tokopedia share some big-name backers, including Google, Temasek Holdings and Sequoia Capital India. (Source photos by Ken Kobayashi and Kosaku Mimura)

JAKARTA -- Two of Indonesia's largest tech companies, Gojek and Tokopedia, are in discussions over a merger, with a view to an initial public offering, as they gear up to confront the region's biggest tech company, Singapore's Sea, Nikkei Asia has learned.

The talks come as superapp provider Gojek's merger negotiations with Singapore-based rival Grab hit a snag, due to Grab founder and CEO Anthony Tan playing hardball and Grab's biggest financial backer SoftBank Group's Masayoshi Son losing patience, according to two people familiar with the matter. SoftBank is also Tokopedia's largest shareholder, and one person said Son has "given his blessing" to a Gojek-Tokopedia deal.

The two Indonesian companies have agreed to conduct due diligence on their respective businesses, seeing a merger as an opportunity to grab a bigger piece of Indonesia's internet economy, the fastest growing in the region, by creating a behemoth that encompasses e-commerce, ride-hailing, food delivery and payments.

Gojek is valued at $10 billion and Tokopedia, one of Indonesia's largest e-commerce platforms, at $7 billion, meaning a combined entity would be worth more than Grab, valued at $14.3 billion, according to CB Insights.

A dual listing in Indonesia and the U.S. is a possibility, but using a SPAC, or special-purpose acquisition company, for its U.S. listing is another avenue the two are exploring, the people familiar with the matter said. Tokopedia said last month that it had talked to a SPAC as it moves forward with its IPO plans.

Gojek declined to comment on the potential merger, while Tokopedia said it will not comment on market rumors or speculation. The talks were earlier reported by Bloomberg.

Combining the Indonesian startups makes sense because "they complement each other," said one person with knowledge of the matter. A Gojek-Grab merger would "dominate in markets like ride-hailing and food delivery," but they are a "low entry-barrier business," the investor said. "But Gojek and Tokopedia is one plus one becoming 11. Ride-hailing and food delivery [are] high-frequency and low-ticket items, and e-commerce is a slightly less frequency and middle-ticket item. [A merged company would] cover the range of transactions."

Gojek says it has 38 million monthly active users across five Southeast Asian countries, while Tokopedia, which only operates in Indonesia, said it had more than 100 million users in December.

Shares in Singapore's Sea, the only big Southeast Asian internet company listed in the U.S., rocketed more than 400% last year, as interest among investors in the region's digital market grew rapidly. Investors in Gojek and Grab had hoped an IPO of a merged entity would garner a similar level of interest as it would have given investors a new entry into Southeast Asia's digital market. The same applies to a potential Gojek-Tokopedia pairing.

Gojek and Tokopedia already share some investors, including Google, Singapore sovereign wealth fund Temasek Holdings and Sequoia Capital India.

But beyond the potential windfall from an IPO, an investor in Tokopedia said that a merger and IPO is important to compete against Sea. "The liquidity -- Sea's [ability to] access capital -- is too big," said the investor, adding that because of its rising share price, the company was able to raise funds cheaply. It pulled in close to $3 billion on the public market in December.

Competing internet companies in Southeast Asia "must have the same playing field with Sea. Otherwise Sea is coming with food delivery, payments. They can [expand] everywhere" with the funds raised, the investor said. "Someone has to stop this, and to stop this they have to consolidate, access to capital markets [on] same level with Shopee, raise the same amount and fight."

A merger between Gojek and Tokopedia will face less scrutiny than a Gojek-Grab merger, as the overlaps in their businesses are limited. However, the payments segment might come under scrutiny, as Tokopedia is a major shareholder in digital payment service OVO, while Gojek operates GoPay. 

Rivalry between Chinese investors in both companies may also be a stumbling block. Alibaba Group is a major shareholder in Tokopedia, while its e-commerce rival JD.com is an investor in Gojek. Alibaba owns Lazada Group, which operates in Indonesia, while JD.com also operates JD.id in the country.

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