Baidu Offloads Money-Losing Meal-Delivery Unit

China’s restaurant-meal-delivery industry is being shaken up by a long-anticipated buyout that leaves just two main contenders in the booming market.

Alibaba-backed Ele.me agreed to buy the Waimai food-delivery division of internet search giant Baidu Inc., the companies announced Wednesday, but did not disclose the price of the deal. Sources close to the deal said it involved $800 million.

The deal had been the subject of extensive talks between the players and follows several failed attempts by Baidu to offload the unit for much more money.

Shanghai-based Ele.me — which in recent years has received more than $10 billion in startup support from venture capital firms and tech giants that include Tencent Holdings Ltd., JD.com Inc. and Alibaba Group Holding Ltd. — will pay Baidu about $200 million in cash and $300 million worth of shares for full ownership of Waimai, the sources said.

Moreover, the deal will give Ele.me promotional space on Baidu products, including online maps, group-buying websites and search engine pages, for several years.

Money-losing Waimai has been running neck-and-neck against Ele.me and Meituan over the past three years. Its niche is professionals who are willing to spend more than average for a lunch delivered to the office.

In early 2016, consultancies such as DDCI said Baidu was claiming Waimai enjoyed a narrow market lead with a 33% share compared with about 30% each for Meituan and Ele.me. Since then, though, the discounts that boosted sales have ended and customer interest waned.

Waimai’s share of the market fell to 13%, compared to 41% each for Meituan and Ele.me, in the first half of 2017, said consultancy iiMedia.

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Nasdaq-listed Baidu had often cited its online mapping service as an advantage that Waimai had over its rivals. But as the delivery service burned cash — reporting an operating loss of 12.4 billion yuan in the second quarter this year — Baidu stepped up efforts to find a buyer while cutting marketing expenses and ending customer discounts.

Sources familiar with the competitive meal-delivery sector said Baidu may have missed more than one window of opportunity to get a higher price for Waimai.

In January 2016, for example, Baidu failed to reach an agreement with Meituan for the latter’s $3 billion offer for Waimai, mainly because Baidu wanted the buyer to also take over its money-losing Nuomi group-buying business.

Also last year, Baidu passed on an offer from the courier and logistics giant SF, which wanted to buy a stake in Waimai for $2.4 billion. And it rejected a proposal from restaurant operator Yum China Holdings, operator of the KFC and Pizza Hut restaurant chains on the mainland.

Yum China later announced that it would take control of a small, high-end takeout dining specialist called Sherpa’s.

“Baidu should have tied the knot (with other Waimai bidders) as soon as they decided they were going to quit the game,” said a source who asked not to be named. “It’s a pity they are only getting a fraction of what they could have got.”

Contact reporter April Ma (fangjingma@caixin.com)