SoftBank Grabs a Ticket to Ride and Uber's Stranded
(Bloomberg Gadfly) -- When your largest shareholder also backs your rivals, and at the same time advises you to surrender some markets to them, you've got to wonder about motives.
The last thing Uber Technologies Inc. needs is yet another battle between management and investors, as ousted founder Travis Kalanick's troubles with Benchmark Capital are only just over.
But selling operations in some Southeast Asian markets to Grab in exchange for a stake of up to 20 percent in its rival isn't a strategic retreat. It's a blunder of Himalayan proportions. (Yoolim Lee and Eric Newcomer of Bloomberg News reported Thursday that Grab and Uber may sign the deal this week or next.)
Uber's new CEO, Dara Khosrowshahi, should have pushed back more firmly against 15 percent owner SoftBank Group Corp.'s advice to concentrate on key markets in the U.S., Europe, Latin America and Australia. Having already relinquished China to Didi Chuxing, giving up on Southeast Asia would be a precursor to perhaps losing India and Japan too -- a blow from which the ride-hailing pioneer might never recover.
A SoftBank-led consortium took the Uber stake earlier this year in a $9.3 billion deal that paid some shareholders and pumped $1.25 billion directly into Uber. The arrangement raised eyebrows because just a few months earlier, Grab had raised $2 billion from SoftBank and Didi, cementing an anti-Uber alliance.
The logic behind the Uber investment is now becoming clear. By ensuring a retreat for the U.S. company before any more bloodletting for market share, SoftBank's Masayoshi Son has made sure that six-year-old Grab will emerge as an early champion in what is ultimately a winner-takes-all business. A quicker road to profit for Uber would also be a shot in the arm for its planned IPO next year.
Both outcomes would please Son, but they come at a cost to Uber. For one thing, its decision to throw in the towel in Southeast Asia will embolden its Indian rival Ola -- in which, again, SoftBank is the biggest investor.
Just last month, the Uber CEO went to India and said his goal is to stay on and fight for supremacy in the firm's largest Asian market, where the two rivals are currently going head-to-head. At the same news conference in New Delhi, however, Khosrowshahi also said he expected to invest "aggressively" in Southeast Asia and lose money. With one promise broken, the other is sure to be tested.
Where does all this leave ComfortDelgro Corp.? Singapore's No. 1 taxi company acquired 51 percent of Uber's car-rental unit in December at a 10 percent discount to the fleet's net asset value. The transaction also allowed Comfort taxis to be on the Uber app. It's early days, but local media reports suggest taxi drivers are less than chuffed with Uber fares below metered cab charges. ComfortDelgro shares are down 13 percent from August, when the partnership talks were disclosed.
Expect the despondency to grow. It's still unclear if the decision to sell out of Southeast Asia also means an exit from the city-state. Singapore happens to be Uber's Asian headquarters, but Khosrowshahi gave it a miss on his maiden Asia trip.
Leaving an important center for finance and tourism would compound the original error. The 3 million Indonesian and half-million Thai visitors to the island last year are regular Grab users; the Uber app won't be on their phones any more.
So the fall of Singapore is nigh, and that, as I have argued, would be the beginning of the end of Uber's global empire. Ola will fight Uber in Australia; even Japan's $16 billion taxi market, where Uber's hoping to grow by teaming up with cab companies, could become the theater for another battle against Didi, which has very similar ideas... not to mention the same investor.
Masa Son's ride will no doubt become more comfortable as his ride-hailing investments stop showering SoftBank cash on drivers and customers in incentives and subsidies. But an Uber that's irrelevant to Asia, the world's most populous and fastest-growing region, will eventually find itself stranded.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.
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