While there have been numerous media reports of a potential merger between
Grab and GoTo, analyst has seen a real risk of the regulator objecting to a Grab-Gojek merger in Singapore.

Maybank Investment Bank said in a note on Thursday that In Singapore, GoTo only has Gojek, ie, ride hailing, and in the recent past, the regulator rejected the proposed acquisition of Transcab by Grab.

Recently in Taiwan as well, the regulator declined the proposed acquisition of FoodPanda by Uber.

“A potential scenario is for Gojek to exit Singapore ahead of the merge and acquisition (M&A). We estimate Gojek has less than 10 percent market share in Singapore,” the research house said.

In a scenario of Gojek exiting Singapore, it noted the market share could be proportionately divided to the remaining operators.

Grab, being the largest, should proportionality capture the largest chunk vacated by
Gojek, it added.

The report also highlighted that in Indonesia, Grab-Gojek would end up with 80 percent market share of the Indonesian ride-hailing space.

However, it noted their share within overall ground transportation would still be at a more comfortable level of 23 percent (listed and rail).

Further expanding the scope and including the other public transport services, Grab-Gojek’s combined market share would fall to 11 percent (about 5 percent to 6 percent if excluding food delivery).

On top, the regulator could issue more ride-hailing licenses (such as the recent entry of Xanh SM), which could introduce 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.

Meanwhile, in case Grab acquires the whole of GoTo at a $7 billion valuation, the report noted that Grab’s balance sheet could slip to a net debt of $500 million – not a very desirable scenario in a sector that is still prone to new players and technology disruptors.

“In this scenario, we see synergy net present value (NPV) of $3 billion, which is 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.

That said, it opined that Grab (or GoTo) potentially divesting the ecommerce business post (or pre) M&A remains one of the viable options, thereby preserving balance sheet strength.

“An all-shares deal is a better scenario in our view for Grab,” it added.

The report also said that GoTo is already in a net-cash position of $1.4 billion and is not exposed to major 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 house also pointed out that an acquisition of the entire GoTo by Grab
could result in a mandatory tender offer.

“At our GoTo fair value of IDR 120/share, it leaves 41 percent upside for GoTo minorities,” it added.

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