TAICHUNG, Taiwan (BRAIN) — An article that popped up on a Chinese website that covers venture capital investment caused a stir last week. It reported that Ofo, a Chinese bike sharing company, was looking to purchase Giant Manufacturing.
Irene Chen, Giant's senior global marketing executive, quickly scotched that story, telling BRAIN, "It's not true." Chen also said that the company had knocked that rumor down in China.
However, it was the source cited for the purchase that ramped up attention and speculation, especially in Taiwan. It was the founder of Didi Chuxing, Cheng Wei. His company essentially drove Uber out of China.
The report first surfaced on China Money Network, a Hong Kong media company that follows China's venture capital and private equity markets for global investors. It has a following on a number of social media sites.
The article claimed that Wei, also a member of Ofo's board of directors, suggested buying Giant during a recent internal forum held in Beijing.
Didi Chuxing is a major ride sharing company that, according to its website, provides transportation for more than 400 million users in 400 cities across China through taxi, limo, bus, car rental as well as several app-driven ride sharing units including those for bicycles.
The article noted that Didi had invested heavily in Ofo in September 2016. Wei joined the board as part of the company's investment in Ofo.
In April, Ofo's founder and CEO, Dai Wei, told CNBC that his company, founded in 2014, was now worth $2 billion. The company claimed that it has more than 3 million of its bright yellow bikes in more than 50 Chinese cities and has expanded into London and Singapore. Wei also told investors it hopes to expand in 20 other countries across Europe and Asia.
Ofo apparently buys bikes from Fuji-Ta, China's biggest bicycle manufacturer. Fuji-Ta's annual production capacity hovers around 20 million units, according to its website. It's also an OE supplier and sells its bikes under different labels in North America, Europe, Asia and elsewhere. It's also one of the lowest-cost bicycle manufacturers in the world.
While app-driven bike sharing has boomed in China, Giant, on the other hand, remains committed to bike sharing through docking stations. At the Taipei Cycle Show in March, Bonnie Tu, Giant's chief financial officer, told BRAIN that traditional docking stations offer a more stable program if bike sharing as a business is to succeed.
A source close to Giant's management also told BRAIN that the company is "very committed" to docking stations and that its leadership has pointed out on numerous occasions that China's app-driven system is "not acceptable."
Nonetheless, new technology companies like Ofo have unsettled traditional legacy operations like Giant, Merida, Ideal and others, especially as their stock prices have declined over the last 18 months or so.
Bike sharing companies are capital intensive; not only do they have to buy bikes, but they must in some fashion maintain them. And fares for companies like Ofo and others are low.
In the same CNBC report, Paul Gillis, a professor and co-director at Peking University's Guanghua School of Management, pointed out that the low fares charged at present are most likely not earning a positive cash flow.
Still, Didi Chuxing's three largest investors are Chinese internet giants Alibaba, Tencent and Baidu. Didi Chuxing was valued at approximately $50 billion after its acquisition of Uber.
Uber had been losing about $1 billion a year trying to crack the Chinese market. In August 2016, after billions in losses, Uber agreed to a sale that included a 20 percent minority stake in Didi and a $1 billion equity investment from Didi in Uber.
