INTERNET: Alibaba-Meituan Discord — Split Ahead?

Bottom line: Reports of a recent spat between Meituan and Alibaba are probably exaggerated, but do point to growing tensions that could ultimately prompt Alibaba to sell its small stake in Meituan.

Alibaba, Meituan clash in takeout dining

Everyone is trying to interpret whether a split is imminent between e-commerce leader Alibaba (NYSE: BABA) and leading group buying site Meituan, following a flurry of reports about a spat between the pair over the past few days. The situation is casting a spotlight on the massive web of cross-ownership relationships between many of China’s Internet companies, which is creating odd bedfellows and other conflicts as a wave of mega mergers has swept China’s Internet over the last 2 years.

In this case the conflicts are coming on 2 fronts. The larger of those is related to Meituan’s pending mega merger with archrival Dianping, in a deal announced last month. That union also brought together China’s 2 largest Internet companies in another odd partnership, since Meituan is partly owned by Alibaba and Dianping counts Tencent (HKEx: 700) as one of its largest investors.

Compounding the situation is the fast-growing but also bitterly contested market for online-to-offline (O2O) takeout dining services. Meituan is one of several players aggressively trying to build up that business, even as Alibaba has recently announced it will pump big resources into building up its own rival service called Koubei.

A final piece to this complex puzzle of relationships comes from another round of reports earlier this month saying Tencent was leading a new $1 billion funding round for the merging Meituan-Dianping. (previous post) Alibaba’s name was conspicuously absent from those reports, leading me to speculate that the new funding was really just an awkward bid by Tencent to take control of the newly merging company.

All of the above factors already seemed to point to a growing split between Meituan and Alibaba, which is really just a very small stakeholder in Meituan anyhow with probably less than 5 percent of the company. Talk that the split was widening has been buzzing through the headlines over these last few days, though it’s hard to figure out whether the latest clash is significant or just a local incident getting blown out of proportion.

The actual clash involves actions by Meituan to limit promotions from Alibaba’s Alipay electronic payment service in connection with Meituan’s own takeout dining service. (Chinese article) One of the reports cites a Meituan official confirming the spat, and says it’s directly related to Meituan’s unhappiness over Alibaba’s support for its own rival Koubei service. (Chinese article)

Isolated Incident

But some of the reports also cite Meituan saying the spat was the result of overzealous actions by a handful of employees in one particular office, and didn’t represent any company-wide policy. The reports are also raising the latest $1 billion funding by Tencent as evidence that Alibaba is no longer interested in supporting the merging Meituan-Dianping and could sell its stake.

So, what’s the bottom line in this twisted series of relationships and developments? My best guess is that this particular dispute was indeed an isolated local incident, and doesn’t represent a company-wide policy by Meituan. But the conflicts between Alibaba’s Koubei and Meituan’s own rival delivery service are quite real, and so is the fact that Alibaba doesn’t seem interested in providing more funds to the new Meituan-Dianping.

Tencent has far fewer conflicts in this story, since it hasn’t really invested heavily in O2O services besides its earlier purchase of a stake in Dianping. The fact that Alibaba isn’t rushing to participate in Meituan-Dianping’s new funding round also hints that Alibaba may be prepared to abandon Meituan. That could potentially pave the way for Tencent to become the new Meituan-Dianping’s sole strategic stakeholder, with 30-40 percent of the company valued at up to $5 billion.

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