Competition pressure is too high. Grab and GoTo are reportedly restarting merger negotiations.

Zhitong App has learned from informed sources that Grab, the largest ride-hailing company in Southeast Asia, and GoTo Group have restarted merger negotiations. This potential major merger aims to reverse the losses incurred by both companies over the years due to intense competition.

According to insiders, as leaders in the Southeast Asian food delivery industry as well, the two companies are engaging in preliminary discussions under various circumstances. One insider mentioned that Grab, headquartered in Singapore, may acquire GoTo through cash, stocks, or a combination of both. The insider added that GoTo, the Indonesian company, has become more open to the deal since Patrick Walujo took over as CEO last year.

The discussions have been intermittent as the negotiations are being conducted privately, according to one insider. The main shareholders of both companies support this transaction and have been pushing for the negotiations.

The insiders also pointed out that the negotiations may not result in a comprehensive merger or any agreement. The options being explored by both companies include splitting their main markets, with Grab gaining control over its Singapore headquarters and some other markets, while GoTo retains control in Indonesia.

The insiders added that valuation remains a key obstacle to reaching a deal, as GoTo's stock price has fallen by about 30% in the past 12 months. Other concerns include the deal structure and governance.

A representative from GoTo responded, "No such discussions have taken place," while a representative from Grab declined to comment.

It is understood that both companies have tens of millions of ride-hailing users, and the merger is expected to help them increase fares and achieve synergies in fiercely competitive major markets such as Indonesia. A larger scale can also strengthen the merged entity in higher-profit service areas such as digital payments and banking.

However, this transaction between the most valuable internet companies in Southeast Asia, with a total value of nearly $20 billion, will face strict scrutiny from regulatory authorities. In countries such as Indonesia and Singapore, these two companies are clearly the top two, and the merger may allow them to dominate in some markets. Uber left the region in 2018 in exchange for a stake in Grab, and smaller competitors have yet to make a significant impact on the duopoly of Grab and GoTo in their main markets.

Insiders said that despite this, both companies are still weighing solutions to address these concerns. Both companies see the merger as an important step towards profitability, as their stock prices have been languishing amid increasing losses. Since their respective listings a few years ago, the stock prices of both companies have fallen by about 70%.

The competition between Grab and GoTo has allowed consumers in countries such as Indonesia to enjoy very low prices. In the largest market in Southeast Asia, regulatory authorities are also actively ensuring fair prices. This has put pressure on ride-hailing companies to expand into related service areas such as delivery and digital payments. Grab and GoTo have considered potential mergers in recent years. According to an insider, negotiations resumed after GoTo handed over control of its e-commerce division, Tokopedia, to TikTok in December last year. This arrangement has made Grab and GoTo potential stronger competitors.

One challenge in previous negotiations was control. Grab CEO Anthony Tan holds about 60% of the voting rights in his company and advocates for leading the merged entity.

Walujo, who took office in June last year, successfully led GoTo to achieve adjusted profitability in the fourth quarter, proving to investors that the company has long-term profit potential. The departure of the former leaders of GoTo's two main businesses, Gojek CEO Kevin Aluwi and Tokopedia CEO William Tanuwijaya, and the management partner of shareholder Northstar Group have been key catalysts for the return to the negotiating table.

After years of fierce competition in the ride-hailing, food delivery, and fintech sectors, Grab and GoTo have intermittently engaged in merger negotiations in the past, but without success. A few years ago, the two companies made significant progress in reaching an agreement, but disagreements arose on how to manage the key market of Indonesia, leading to the collapse of the negotiations.