Uber Will IPO by 2019 and Let Softbank Buy a Huge Stake

Remember the Waymo vs. Uber lawsuit? New Uber CEO Dara Khosrowshahi probably wishes it would go away, but it just keeps getting better! Today, senior RSG contributor John Ince covers this lawsuit plus an update on Uber’s eventual/potential IPO, and merger rumors in other countries. 

News Flash:  Before I get into the news of the week, I’ve got some big news on the personal front.  My long awaited book about being an Uber / Lyft driver entitled Travels With Vanessa has just been published and is now available on Amazon.  I’d love it if some of you could write a review.  Hey, you don’t even have to buy it to write a review, but it might help if you read some of it first.

Today, senior RSG contributor John Ince covers this lawsuit plus an update on Uber's eventual/potential IPO, and merger rumors in other countrie

Uber will IPO by 2019 and let Softbank buy a huge stake, following a big board meeting [Business Insider]

Sum and Substance: Uber’s board of directors struck a grand bargain on Tuesday, settling a fractious internal battle that has hamstrung the ride-hailing company for months and paving the way to a giant initial public offering in two years. The board also agreed to move forward with a multibillion-dollar deal to give Japan’s Softbank as much as a 17% stake in Uber, the world’s most valuable privately held tech startup.

Here are the changes approved by Uber’s board, which will take effect after the Softbank deal closes, according to a person familiar with the matter:

• The special supervoting shares that concentrated power in the hands of cofounder Travis Kalanick and other insiders will be annulled. Instead, all shares in Uber will have one vote.
• The board of directors has been expanded to 17 members, up sharply from 11.
• The company has committed to go public by 2019.
• Any new CEO must have two-thirds support of the board vote until after the IPO.

Uber’s board agreed to the changes after meeting for several hours on Tuesday afternoon. And Benchmark Capital, an early Uber investor that had sued Kalanick, has agreed to drop the litigation once the Softbank deal closes, the person familiar with the matter said. The deal appears to significantly curtail Kalanick’s power, a somewhat surprising outcome after various moves and statements by the Uber cofounder that seemed to suggest he was spoiling for a fight. Kalanick built Uber into a $69 billion ride-hailing behemoth, but he was ousted as CEO in June amid a series of controversies and scandals relating to the company’s practices and internal culture. In August, Uber appointed Dara Khosrowshahi, the CEO of Expedia, to replace Kalanick in the top job.

… Uber will receive $1 billion to $1.25 billion in direct funding in the deal with Softbank and Dragoneer Investment Group. That investment will value Uber at its current private-market valuation, $69 billion. Softbank and Dragoneer will also acquire a stake of 14% to 17% in Uber by buying shares from existing investors through a tender off, the person familiar with the matter told Business Insider. Those shares will be sold by several of Uber’s existing private investors at a valuation that could not immediately be learned. The direct-funding portion of the deal with Softbank preserves Uber’s hefty market value, following reports that nearly a year of problems at the company had begun to erode its valuation. … 

Though Uber lost $3 billion last year and continues to lose money, the company is one of the most closely watched IPO candidates. An offering, which Uber now says will happen by 2019, could be one of the largest ever. … 

But at least one major Uber shareholder was not happy with the changes. The venture capitalist Shervin Pishevar said in a statement on Tuesday that he would move forward with a lawsuit seeking class-action status on behalf of shareholders holding the soon-to-be-devalued supervoting shares. “Todays action by the board was the culmination of a blatant bait and switch, essential robbing loyal employees, including the more than 200 early founding Uber employees and advisors, of their hard earning shareholder rights worth billions in value,” Pishevar said …

My Take: Seems like everybody but Shervin Pishevar is spinning this outcome as a win. DK gets credit for creating at least a temporary ceasefire in the boardroom warfare. Early investors get an early exit at a price that still makes this a home run on their books. TK gets to save face because the board left open the possibility of a Jobsian return to power. Softbank gets the equity stake it covets at a deep discount and the power to broker deals with other companies it owns (see article below).

Goldman Sachs gets the inside track on what promises to be one of the most closely watched IPOs in modern business history – not to mention some huge commissions. Uber employees get to go back to work on solving the real problems of the company.

But for all the good vibes coming out of this board meeting, remember this – Uber lost $2.8 billion in FY 2017.  At that burn rate, Softbank’s cash infusion amounts to little more than 4 months of operations, unless DK can figure out a way to stop the hemorrhaging of red ink of a company that has yet to demonstrate they have a viable business model.

To sum up, the board meeting may seem like a win – win – win  outcome, but it only gets Uber back to zero – after a long time in the minus territory of corporate dysfunction. And remember, this is not a done deal yet. Goldman Sachs has set up a rather complicated auction process that must be advertised in a newspaper to let all existing shareholders know about the deal.

Softbank has set a goal of acquiring 14% of the shares, and if that goal is not reached, the deal is off – until the terms are changed. We likely at least a month away until anything final happens. That’s as it should be – because this would be the largest private financing for a startup in history. See more about the specifics of the deal here on Recode.

Softbank is now a major investor in both Ola and Uber: Is a merger inevitable? [TheNewsMinute.com]

Sum and Substance:  In India’s $15-billion-dollar ride-hailing market, Ola and Uber have been the largest players, with nearly 50% market share each. Uber’s latest round of funding from Softbank – touted to be worth around $1 billion in a $10 billion round – has set tongues wagging in the Indian market, again, about the eventuality of a merger between two fierce competitors. Softbank is also a major invested in Ola, having invested $2 billion in it only recently….

India is one of the biggest potential markets for Uber globally, with the company having bowed out of China with a merger deal with Didi. When it raised funds in June from Saudi Arabia’s sovereign wealth fund, reports suggested that a significant portion of the $3.5 billion raised would go to the Indian market.

Ola has not been behind. It has raised nearly Rs 2000 crore from various investors including SoftBank since the beginning of this year. With Softbank having substantially invested in both these companies, what does this mean for the cab aggregator market in India? Could it spark a consolidation orchestrated by SoftBank, similar to what it attempted with Snapdeal and Flipkart? In fact, SoftBank is also an investor in Uber’s rival Grab Taxi, which operates in Southeast Asia, and all of this could be a part of its global strategy to hold on to the cab-hailing market.

Merge or die? The possibility of a consolidation is not entirely unfounded. Rajeev Misra, CEO of SoftBank Vision Fund, had told the Economic Times in an interview that it hopes to make peace between Ola and Uber at some point. “There will be short-term conflict but long-term benefits. There are synergies in R&D, autonomous driving but you are right, it would send conflicting signals to the trenches. We own more than 30% in Ola and we would own much less stake in Uber. We have owned the stake in Ola since 2014 and it does send conflicting signals. But we are hoping that we make peace between them at some point,” Rajeev told ET. 

Madhukar says that for SoftBank, it is all about scale. “At some point if Uber wins the India market, then they may merge with Ola or if Ola becomes the larger player, then maybe Uber will vacate India and take some ownership in Ola like they did with Didi Chuxing in China,” he adds…. The ride isn’t over yet.

My Take: Living here in the United States, we tend to forget that ridesharing is a global phenomenon with global players. Softbank clearly has the global perspective in mind with their strategic investments. They’re likely looking down the road to a time when companies like Uber, Ola and Grab are no longer competitors.

In an industry where network effects predominate, at least locally, it’s easy to see how some kind of merger in the India market would make sense.  The same can be said for Southeast Asia, where Softbank will have major stakes in the chief players.

Waymo vs. Uber: unsealed court documents reveal damning evidence [The Verge]

Sum and Substance: The due diligence report that Uber fought so hard to keep from being used in its legal battle with Waymo and Alphabet was made public on Monday — and it’s easy to see why Uber resisted as hard as it did. The document, prepared by cybersecurity firm Stroz Friedberg as part of Uber’s acquisition of self-driving trucking startup Otto, describes a thorough forensic review of personal devices belonging to five people at Otto, including the much-embattled Anthony Levandowski, who earlier this year attempted to invoke the Fifth Amendment to avoid turning over documents in the case.

The report paints a picture of executives and lawyers trying to rein in improbably risky behavior at Uber and Otto, two wildly undisciplined companies, even as other top executives egged it on. At this point it’s not terribly surprising that the summary report of the investigation — apparently codenamed “Project Unicorn” by Stroz Friedberg — casts Levandowski and Uber’s then-CEO Travis Kalanick in a particularly bad light.

But the report also has damning things to say about Levandowski’s cofounders, Lior Ron and Don Burnette, as well as other employees at Otto, including, of all people, the head of Human Resources. The report describes, for instance, employees caught in lies in their interviews with Stroz investigators; an elaborate saga around the surreptitious destruction of five disks of confidential information belonging to Google; furtive text messages advising each other to delete message logs; and search engine queries regarding “how to secretly delete files mac” or “can a MacBook be recovered after formatting the OS.”

The report does say that Stroz Friedberg “discovered no evidence” that Google confidential information retained by or accessed by Levandowski was transferred to Ottomotto (the full name of self-driving truck startup Otto) or anyone else. Based on the report, at least, it’s clear that Levandowski and others retained or accessed Google information when they shouldn’t have, but it’s not at all clear whether they actually used any of it. That could prove devastating to Alphabet’s case against Uber. The judge himself told lawyers in July, “If you can’t prove that Uber got these trade secrets, then maybe you’re in a world of trouble.” 

The Stroz report does describe a fair amount of suspicious, cagey behavior on the part of the employees they were tasked with investigating. The firm flagged several contradictions between the interviews and the results of their forensic analyses, even throwing shade at Levandowski’s narration of events. “It is difficult to believe that Levandowski was not, prior to his interview, fully aware of the extent of the data that he had retained,” the report remarks.

Stroz Friedberg describes Levandowski’s discovery of five Drobo disks (a type of networked storage) of Google proprietary information in his closet, a few weeks after leaving Google. The disks included “source code, design files, laser files, engineering documents, and software related to Google self-driving cars.”

Levandowski told investigators that he had created the disks in the ordinary course of business while at Google, and that as soon as he realized he had the disks, he informed his attorney and then informed Uber at a meeting on March 11th, 2016. Cameron Poetzscher, head of corporate development at Uber, told Levandowski to preserve the disks, but Travis Kalanick “wanted nothing to do with the disks” and told him to “do what he needed to do.” On the same day, Levandowski wrote in a deleted iMessage to an unknown recipient: “I’ll clean that shit out.”

My Take:  Oh my, this is getting juicy. While the evidence appears overwhelming that Levandowski and Kalanick were definitely up to some funny business, the legal case against Uber is far from a slam dunk.  Waymo has to prove that Uber (not Levandowski) was in possession of stolen trade secrets.

It’s kind of like the O.J. Simpson trial where everybody knows he did it, but the evidence leaves some room for reasonable doubt. Look for Uber to settle for a significant chunk of change, just to get this to go away. DK doesn’t want to be spending his days cleaning up the mess that TK left. 

Readers, what do you think of this week’s round up?

-John @ RSG

The post Uber Will IPO by 2019 and Let Softbank Buy a Huge Stake appeared first on The Rideshare Guy Blog and Podcast.

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