San Francisco-based Uber Technologies Inc. is going ahead with its decision to sell its ride-hailing and food delivery businesses to Southeast Asian powerhouse Grab.
Reports suggest that the deal, which has already been finalized, ensures a 27.5 percent stake for Uber in the Singapore-based company, along with a place for CEO Dara Khosrowshahi on Grab’s board. The value aspect of the acquisition is not in the public domain, yet.
In addition to Singapore, Grab’s business interests encompass neighboring Southeast Asian countries, including Malaysia, Philippines, Indonesia, Vietnam, Myanmar, Thailand, and Cambodia – a region of 620 million potential customers.
Khosrowshahi attributes this most recent Uber retreat to the company’s unprecedented growth in the region over the past few years, saying that it would allow the company to channel its resources towards developing better products and technology to cater to the growing needs of the global customer.
“This deal is a testament to Uber’s exceptional growth across Southeast Asia over the last five years. It will help us double down on our plans for growth as we invest heavily in our products and technology to create the best customer experience on the planet,” Khosrowshahi said.
It must be mentioned that this is Uber’s third exit from a regional market, having sold its China business to local rival Didi Chuxing in 2016, and its Russian end of operations to Yandex, as recently as the end of last year.
It would appear that Uber is selling off its overseas operations as part of a larger plan to avoid head-on collisions with strong regional rivals.
‘If you can’t beat them, join them,’ seems to be the way the company is going, and Khosrowshahi kind of acknowledges that in his letter to Uber employees.
“It is fair to ask whether consolidation is now the strategy of the day, given this is the third deal of its kind, from China to Russia and now Southeast Asia. The answer is no,” he wrote.
“One of the potential dangers of our global strategy is that we take on too many battles across too many fronts and with too many competitors. This transaction now puts us in a position to compete with real focus and weight in the core markets where we operate, while giving us valuable and growing equity stakes in a number of big and important markets where we don’t,” he added.
In another merger-related email to his team, Khosrowshahi portrays the deal as well worth Uber’s while.
The merger, according to him, is a winning combination that translates to a stake worth billions of dollars in the Southeast Asian company, after a relatively meager investment of $700 million.
“After investing $700 million in the region, we will hold a stake worth several billion dollars, and strategic ownership in what we believe will be the winner in an important global region,” said the Uber boss.
Khosrowshahi may want to make it look like all’s hunky-dory with his company, but the fact remains that the latest Uber acquisition is more of a triumph for Grab and its biggest shareholder SoftBank Group Corp., which has a stake in Uber, as well.
Karishma Vaswani, BBC’s Asia business correspondent hits the nail on the head, as she notes that “Uber is keen to push the message that this isn’t a retreat from South East Asia – that instead, this is a merger of equals – a partnership of sorts,” going on to suggest that regardless of how substantial Uber’s stake is, abandoning three markets does raise a few eyebrows.
Experts feel that Uber’s withdrawal from three potentially lucrative long-term markets is a quick-moneymaking tactic ahead of its plans to go public in 2019.
“Uber is now under pressure to move towards making money for a 2019 IPO, which has been promised to shareholders,” wrote John Colley, of Warwick Business School. “In China, Russia and now South East Asia it has been out-flanked by local competition with better local knowledge and connections.”
So, are we looking at similar Uber withdrawals from other regional markets as well?
Is India, which accounts for 10 percent of Uber’s global ride business, the next in line for a massive merger?
Well, with the SoftBank Group’s substantial stake, not only in Uber but a number of its competitors as well, including India’s own ride-hailing app Ola Cabs, it would be in the Japanese conglomerate’s interest to push for an Ola-Uber merger.
Grab CEO Anthony Tan had this to say about his company’s potentially lucrative grab: “Today’s acquisition marks the beginning of a new era. The combined business is the leader in platform and cost efficiency in the region.”
Previously headquartered in Malaysia, Grab has been running its operations from Singapore ever since it shifted base to the small but affluent island republic in 2014.
During the course of its relatively short existence, the company has grown into a formidable ride-hailing force in the region, recently valued at $6 billion.
Said to be one of Southeast Asia’s hottest start-ups, Grab offers a decent range of ride-hailing services, like the GrabTaxi, GrabCar, GrabBike, GrabHitch, GrabExpress, and GrabPay, in nearly 200 cities across eight countries.
The company boasts App downloads in excess of 86 million, which is likely to increase exponentially, given the takeover of Uber’s activities in the region.