Uber departures from China, Russia and Southeast Asia were listed as company failures, but the ridesharing giant has already made billions on paper from those moves, according to its IPO statement.
Uber launched its long-awaited S1. Thursday, US time, and journalists and analysts are frantically exploring a trove of unpublished details. A series of sections on Uber’s global divestitures begin to show a clear picture of the strategy Uber employed in exiting China, Russia and Southeast Asia in recent years.
In each case, Uber decided to exit the market, but in doing so acquired a stake in its rival business in exchange for its remaining assets. That not only keeps them engaged, but removes the often substantial cost of competing with a single market player and gives Uber options to re-enter the market or profit from its partner’s success there.
That strategy is already bearing fruit. TToday those holdings are collectively worth $ 12.5 billion on paper, with a minimum of $ 3 billion in earnings thus far.
China: $ 7.95 billion
China was Uber’s first tactical outing and saw the company sell to local giant Didi Chuxing in August 2016.
Uber’s filing shows that the American firm took an 18.8 percent take on Didi. That, according to Uber, has since dropped to around 15.4 percent due to subsequent fundraising from Didi, which publicly announced a $ 5.5 billion raise a year ago; previously, it raised $ 4 billion at the end of 2017.
The really interesting part of the presentation is Uber’s estimate for the value of its stake in Didi – that was $ 5.97 billion at the end of 2017, and $ 7.95 billion at the end of last year. That’s a $ 2 billion increase on paper in just one year, though Uber’s filing doesn’t provide value for the initial merger deal. Didi is in the money too, having invested $ 1 billion in Uber in exchange for shares.
One notable piece is that an investigation into whether the deal constitutes a monopoly is still ongoing, roughly two and a half years after the transaction was first announced.
“It is not clear how or when that process will be resolved,” says Uber in its document.
Finally, the original agreement included a clause that prohibited Didi from making “certain investments outside of Asia” for a period of six years. The company broke it (it acquired rival Uber 99 in Brazil and expanded its business to Mexico, among other moves), which caused Uber to recover some shares, although its net profit was only $ 152 million.
Didi has struggled for the past 18 months, so safety concerns arose following the murder of two female passengers last year. Operationally, too, there have been challenges. Didi reportedly lost $ 1.6 billion last year, more than Uber, and reaffirmed the organization by laying off 15 percent of its staff recently. Despite buying from Uber, it faces increased competition after a consortium of automakers signed a $ 1.45 billion joint venture for travel trips, while new government rules have made the travel business , and in particular the recruitment of drivers, is more difficult in China.
However, as China’s dominant firm and with an increasingly global presence, you could imagine that Uber’s involvement is likely to become more lucrative in the future.
Southeast Asia: $ 3.22 billion
Uber’s departure from Southeast Asia in March 2018 never seemed like a copy of its play in China, where about $ 1 billion a year was being burned. Instead, I argued that the deal was actually a win for the American firm because it took a decent cut of Grab as part of the deal and Uber’s filings show that that is already proving to be the case.
Uber noted that the exit deal led to an initial 30 percent stake for $ 2.28 billion, which has since diluted to around 23 percent following the Grab fundraiser, which remains ongoing. with a goal of $ 6.5 billion for its Series H. (That may be why Uber’s share was initially announced as 23 percent instead of 30 percent.)
According to sources, Grab’s most recent valuation was $ 14 billion, meaning Uber’s stake is already worth $ 3.22 billion, a jump of nearly $ 1 billion on paper in just one year. .
With the company in a dogfight with Go-Jek, its Indonesian rival that is backed by Google and Tencent, it seems unlikely that Grab and key shareholder SoftBank will do more than keep increasing. That will likely dilute Uber, which, as a shareholder rather than an investor, is not likely to invest again, but it will increase the valuation of Grab, and thus the value of Uber’s stake.
That brings us to the next detail of Uber’s Grab’s investment: its stake is classified as “available-for-sale debt security.” That is, Uber could potentially dispose of your participation in the future.
In fact, Uber’s filing points to a clause in the agreement that would allow the US company to sell “all or part of its investment back to Grab for cash” if the company had not gone public on March 25, 2023, five years after the agreement.
That’s the first real line in the sand we’ve seen for a Grab IPO and, with a buyback that’s already expensive, as Uber’s stake is worth more than $ 3 billion, time keeps ticking on.
Russia: $ 1.4 billion
Finally, Uber’s third tactical retreat is Russia, where it formed a joint venture with local rival Yandex.taxi in July 2017. The combined business encompasses transportation and food delivery in more than 127 cities in Russia.
That gives a different kind of relationship to his deals with Didi and Grab, where he is one of many minority shareholders, and Uber’s S1 gives less detail on Russia’s JV.
What we do know is that Uber estimates its share of the business to be 38 percent, a portion it says is worth $ 1.4 billion. That’s a valuation of around $ 3.68 billion that is on par with the $ 3.7 billion that the companies announced at the time of the deal. Like the other deals, the business is dominant in a huge market: Russia has a population of more than 140 million people, so it is logical that the business grows and therefore the value of Uber increases.
Yandex, the father of Yandex.taxi, also benefits and not only from the joint venture. Uber assigned the company two million shares (worth $ 54 million) that, at a proposed price of $ 55 per share, would more than double to $ 110 million in the IPO and that doesn’t count their potential value in the future.
A change with the acquisition of Careem.
Uber CEO Dara Khosrowshahi said Southeast Asia would be the company’s last global withdrawal, and that it appears that it has kept its word so far. In fact, Uber announced its largest acquisition last month with a planned $ 3 billion purchase of its rival in the Middle East, Careem, which is present in 15 markets.
Uber’s filing explains that the deal, which has not been completed, is for $ 3.1 billion with around $ 1.4 billion in cash.
“We have structured the acquisition and proposed integration of Careem with the goal of preserving the strengths of both companies, including opportunities to create operational efficiencies on both platforms. “We look forward to sharing consumer demand and driver supply on both platforms, which will increase network density and reduce wait times for consumers and drivers in the region, while at the same time achieving synergies by combining back-end support functions and shared technology infrastructure, “Uber wrote in a statement.
This is certainly a new approach for Uber around the world, and after the IPO, it will be interesting to see how it plays an active role in consolidating other companies rather than doing it any other way. However, those three global recalls are likely to perform very well despite being billed as a result of failure.