SoftBank’s Uber Deal Hits Snag

Some Shareholders Say Offer Too Low Amidst More Bad News for Uber

Last week we wrote about SoftBank’s effort to invest up to $10 billion in Uber.  However, there was a catch.  Uber’s most recent financing round valued the unicorn at $68 billion, and Softbank wanted to purchase existing shares at a price of $50 billion, or a 26% discount to the most recent pricing.  We asked what would happen to the deal.

Key Uber Investor Resists Softbank Offer

Today’s Wall Street Journal provides an update.  Uber’s top investor, Benchmark, is resisting the deal.  The catch appears to be the price, at least in part.  Benchmark owns about 13% of Uber per the WSJ, so its state (for which it paid $27 million) is worth about $6.5 billion at Softbank’s offer price of $50 billion, and about $8.4 billion at the $68 billion valuation.

And Benchmark believes that the Uber valuation is headed towards $100 billion, so there’s some reluctance on their part.  Benchmark’s director on Uber’s board was the only director voting against the Softbank offer sheet.

Softbank also wants to rationalize Uber’s board (and wants two seats), an effort that is being resisted by ousted CEO, Travis Kalanick, who owns about a 10% share, controls three board seats, and also says he does not want to sell any stock.

Uber’s new CEO, Dara Khosrowshahi, is said to be in favor of the Softbank deal.

Some Uber investors are likely excited about the prospects of liquidity at a $50 billion valuation.  I’ve emphasized the word liquidity because Softbank wants to invest cash for existing Uber shares.  And some investors are expected to sell some of their shares.

Assume an early investor bought in on the same terms as Benchmark, which reflected a valuation just north of $200 million.  If that investor bought just 2% of Uber at that price, they would have paid just over $4 million.  At the $50 billion valuation being offered by Softbank, that investment would now be worth about $1 billion.

This is a heady valuation to say the least.

What Else is Going On With Uber?

In the same issue of the WSJ, it was reported that, according to London authorities, Uber “is not fit to hold onto its private-car license in the city.

While Uber will be allowed to continue to operate in London during what may be a lengthy appeal process, the announcement cannot be good news for Uber management and shareholders.  London accounts for:

  • 5% of Uber’s active customer base (about 3.5 million) of 65 million worldwide, and,
  • About one-third of its active user base of 11 million in Europe.

In other words, today’s London announcement cannot be viewed as good news for Uber.  Based on the routine, knee-jerk reactions of many public stocks to adverse news, the London announcement almost certainly would have generated a drop in Uber’s stock price if it had been public.

Will the loss of the London private-car for hire permit help the Softbank deal we discussed above?  Who knows?

Like last week, let’s wait and see…

In the meantime, be well!




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