• Grab and Gojek fail to come to terms on a possible merger owing to disagreements over regional leadership of merged entity

• Gojek and Tokopedia’s union can be promising for both companies
• Regional expansion of Gojek-Tokopedia merged entity needs closer look for it to succeed

Two Indonesian unicorns, Gojek and Tokopedia, are in advanced discussions about a possible merger ahead of their planned dual public listing in Indonesia and the US, according to Bloomberg.

Gojek, a ride-hailing service app turned multi-service platform and payments technology platform, and Tokopedia, an e-commerce group, first considered a merger back in 2018. Discussions were fast-tracked after Gojek’s proposed merger with Grab fell through.

Grab and Gojek fail to come to an agreement

The Grab-Gojek planned merger backed by Masayoshi Son, CEO of Softbank, faced a number of hurdles such as disagreements over ownership and management of the combined entity. Anthony Tan, CEO of Grab, was reportedly in favour of an acquisition of Gojek and turning it into a subsidiary of Grab. Gojek’s executives, on the other hand, wanted a partnership. Exacerbating the issue is the reluctance of regulators to green light the merger that could have resulted in reduced market competition.

Tokopedia, backed by Softbank, has little overlap with Gojek save for its payments business where it is a major shareholder in OVO, one of the leading digital payment platforms in the country. It also launched in December 2020 an artificial intelligence (AI)-supported PayLater service with another payment company, Indodana. Gojek meanwhile operates its own payment platform, GoPay.

Gojek-Tokopedia union a promising thought

The potential merger between Gojek and Tokopedia could result in an $18 billion internet powerhouse in the region that can provide services such as ride-hailing, online shopping and delivery, and payments.

The two companies are mulling a combined public listing in Indonesia and the US but have yet to reach a conclusion. “We have not decided yet which market and method and are still considering options,” a spokesperson for Tokopedia said.

Shopee’s owner Sea Ltd, whose shares last year increased to about 400% putting its market value at about $82 billion, is currently the region’s biggest internet company.

Tokopedia has hired Morgan Stanley and Citigroup as advisors to accelerate its initial public offering (IPO).

Both companies have also secured funding from big companies in November. Google and Singapore-based Temasek invested in Tokopedia. Gojek, for its part, received $150 million from Telkomsel.

The blockbuster deal looks promising for both parties as it could pave the way for improved logistics and secure growth in Indonesia’s market of 267 million people and eventually the entire Southeast Asian market – a focus for many investors globally.  

Both Tokopedia and Gojek have expressed desire to take advantage of their respective user bases and provide financial technology services such as loans, insurance, and other banking products. Gojek has 190 million app users while Tokopedia has 100 million subscribers. The plan holds a lot of potential considering Indonesia has an estimated 95 million unbanked and 47 million underbanked population, respectively. Among the local players in the region, Gojek’s rival Grab has expressed its desire to do the same.

With this and the potential merger with Gojek, Tokopedia is poised to boost its presence in Indonesia and the rest of Southeast Asia which is dominated by Alibaba’s Lazada and Sea’s Shopee.

A need to take a closer look

Despite its huge promise, there are pitfalls that lurk around the potential tie-up. While Gojek and Tokopedia are among Indonesia’s leaders in their respective businesses, both have yet to make a dent in the Southeast Asian market which both companies are eyeing to disrupt. Grab has a strong presence in the region that will be hard for the former to overtake.

Tokopedia, while a household name in Indonesia, is relatively unknown in neighbouring countries and even had to fight for dominance with Shopee in its own market. Large e-commerce players in the region like Lazada, Shopee, AliExpress, and Zalora will be hard to contend with even with a successful merger. In terms of payments and banking services, GrabPay, Alipay, ShopeePay, and WeChat Pay are already established players in the region. These scenarios plus the pandemic-induced economic downturn could put profit-making in the short to medium term a big challenge.

Softbank incurred over $13 billion in operating losses in 2019 after many of Son’s Vision Fund investments failed to make profit. The company has since made a dramatic recovery and posted a $12 billion profit in the third quarter of 2020.

Uber, Oyo, and WeWork were all as promising as Gojek and Tokopedia but badly need cash injections from Softbank after they failed to meet expectations. These issues need to be carefully scrutinised if Gojek and Tokopedia are to push through with the merger and IPO listing.