Shanghai-headquartered food delivery service provider Ele.me has merged with Baidu's food and beverage takeaway delivery service Baidu Waimai in a deal valued at $800 million.
Baidu Waimai will become a wholly owned subsidiary of Alibaba-backed Ele.me and its brand and business operation team would remain unchanged.
Alibaba has provided financing for the deal and Baidu has also become Ele.me's stakeholder through a share swap deal. Baidu and Alibaba pledged to increase their support for the new entity in technology, finance and insurance.
With the powerful backing of both Alibaba and Baidu, the combined entity "is poised to lead the online-to-offline service industry in China," said Ele.me Chief Executive Officer Zhang Xuhao.
Baidu Group President and Chief Operating Officer Lu Qi believed that "the integration of resources and technical capabilities will allow Baidu to utilize its cutting edge technology to provide a better experience for consumers and merchants."
Alibaba-backed Ele.me and Tencent-backed Meituan Dianping are set to compete more intensely as both Internet giants are betting on online-to-offline services to help them connect Internet users not only with online vendors but also offline merchants and service providers.
Meituan Dianping has a 45 percent share of the food delivery market by transactions, followed by Ele.me's 36.4 percent and Baidu Waimai' 6.3 percent.
Baidu's takeaway delivery service trails Meituan and Ele.me and is less popular compared to them, according to Cao Lei, director of Hangzhou-based private research agency China E-commerce Research Center.
He said the merger will help Ele.me "gain access to Baidu's high end consumers, as it still needs more resources to fight against Meituan Dianping's growing influence in lower tier cities."
China's online food delivery service market is set to hit 662 billion yuan ($99 billion) by 2018 and is estimated to cover 15 percent of the overall catering market, according to a latest report of Internet consultancy iResearch Inc.
Ele.me was set up in 2008 and now covers about 2,000 cities with 260 million consumers. Baidu's takeout delivery service started in 2014 and now operates in 300 cities covering 100 million users.
