Many news reports have been about a possible merger between Grab and GoTo. However, analysts believe that Singapore’s regulators might not approve a Grab-Gojek merger.
Maybank Investment Bank said in a note on Thursday that in Singapore, GoTo only operates Gojek, which offers ride-hailing services. They also pointed out that the regulator blocked Grab’s plan to buy Transcab not long ago.
Recently, the regulator refused to approve Uber’s plan to buy FoodPanda in Taiwan.
“A potential scenario is for Gojek to exit Singapore before the merger and acquisition (M&A). We estimate Gojek has less than 10 percent market share in Singapore,” the research house said.
If Gojek leaves Singapore, the report said its market share would likely be shared among ride-hailing companies.
The report added that since Grab is the biggest company, it would likely take the largest share of the market left by Gojek.
The report also pointed out that if Grab and Gojek merge in Indonesia, they would control about 80% of the ride-hailing market there.
However, the report noted that their combined share of the ground transportation market, including buses and trains, would still be a more manageable 23 percent.
If you include all types of public transport, Grab and Gojek’s combined market share would drop to 11 percent. Without counting food delivery, it would be even lower—around 5 to 6 percent.
Additionally, the regulator could issue more ride-hailing licenses, as they did with the recent entry of Xanh SM, bringing new competitors into the market.
“On food delivery, while GrabGojek combined would end up with 90 percent market share, we don’t think it will be of major regulatory concern as those services cater to the affluent segment of the market,” Maybank said.
The report also mentioned that if Grab buys all of GoTo for $7 billion, Grab’s balance sheet could show a net debt of $500 million. This wouldn’t be a good situation, especially in an industry that is still facing new competitors and technological changes.
“In this scenario, we see synergy net present value (NPV) of $3 billion, which is the same as Grab acquiring Gojek+fintech and (it is) not very high versus a scenario of Grab only acquires Gojek (synergy NPV of $2.4 billion),” said Maybank.
The report suggested that one possible option for Grab (or GoTo) after or before a merger would be to sell off the e-commerce business. This could help maintain a strong balance sheet.
“An all-shares deal is a better scenario in our view for Grab,”
The report also mentioned that GoTo has $1.4 billion in net cash and no significant loss-making assets.
“We believe cash proceeds from asset sales would become dividends. The sale of Gojek may result in only a dividend of IDR 39 ($0.0024) per share, translating to a 45 percent dividend yield,
“Sale of Gojek+fintech assets could lead to proceeds of IDR 84 trillion, resulting in a dividend of IDR 78/share, translating to a 92 percent dividend yield,” said Maybank.
The research firm also mentioned that if Grab buys all of GoTo, it could lead to a mandatory tender offer.
“At our GoTo fair value of IDR 120/share, it leaves 41 percent upside for GoTo minorities,”
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