(Dec 17): Shares of GoTo Group are seeing signs of new life ahead of a shareholders’ meeting that may help pave the way for its long-awaited merger with larger rival Grab Holdings Ltd.
GoTo’s stock has risen about 20% in Jakarta so far this quarter, beating global ride-hailing and delivery peers. Support from major shareholders and the Indonesian government for a takeover by Grab have helped drive a turnaround after years of underperformance.
At a meeting Wednesday, GoTo shareholders will vote on whether to approve the appointment of Hans Patuwo as chief executive officer, replacing Patrick Walujo, who has opposed the deal with Singapore-based Grab. A new CEO may speed a transaction that would create a Southeast Asian tech sector powerhouse.
“The two companies together would make a much bigger entity — it would have a much bigger scale and more market share,” said Angus Mackintosh, an analyst at Aletheia Capital. “It would be a massively dominant animal.”
GoTo — which offers services from transportation and food delivery to online shopping and financial services — had been considering the merger as an option as it struggled with profitability. Even with the recent stock rebound, GoTo’s market value has plunged to less than US$5 billion ($6.44 billion) from a high of more than US$30 billion shortly after its listing in 2022.
Co-founders of the company and prominent investors including SoftBank Group Corp pushed for the ouster of Walujo, who took the helm in 2023. Indonesia’s sovereign wealth fund Danantara is among those now trying to facilitate a deal with Grab, lending a stamp of approval from the nation’s leaders.
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The business outlook has brightened somewhat, with GoTo raising its guidance and analysts projecting it will turn a profit next year.
Still, “in the near term, M&A sentiment is outweighing fundamentals,” Macquarie Group Ltd analyst Ariyanto Jahja wrote in a note last week. Government support plus likely board changes have made a merger more probable, he added.
Meanwhile, Uber Technologies Inc-backed Grab is expected to post a profit this year, though it too has struggled with periods of red ink since it listed in New York in late 2021. It’s been eyeing a deal with GoTo in order to improve its operating leverage.
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A merger would “help Grab strengthen its market share in the Southeast Asia region” and thereby discourage any potential competitors, Citigroup Inc analyst Alicia Yap wrote in a report last month. It could lead to cost savings by allowing the companies to lower discounts they offer customers, which would increase margins, she added.
While a combination would be good for profits, it has sparked concerns in Indonesia about higher prices for consumers, as well as possible job losses. A merged Grab and GoTo would potentially control over 90% of the nation’s ride-hailing and food-delivery market, according to Citi analyst Ferry Wong.
In that context, “Danantara’s participation may ease monopoly concerns,” Wong wrote in a Nov 24 note. “While execution risks remain, we believe the management restructuring would improve the likelihood of regulatory approval for a merger.”
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