Japanese giant proposes $10 billion investment in startup, if it can get a discount
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 15, 2017).
Continue Reading Below
SoftBank Group Corp. is nearing an ambitious deal to take a substantial stake in Uber Technologies Inc. -- but only if the Japanese technology investor can persuade shareholders to sell enough stock at a steep discount.
After weeks of deliberation, Uber's board in recent days has been hashing out its response to a potential investment led by SoftBank that could total as much as $10 billion, according to people familiar with the matter.
If successful, that would be among the largest-ever single investments in a private venture-backed startup.
It would also give SoftBank, whose Chief Executive Masayoshi Son has predicted that companies like Uber will transform the world, major stakes in nearly all the world's top ride-hailing firms.
SoftBank and its $93 billion tech-focused Vision Fund are proposing to buy 17% to 22% of Uber through a combination of share purchases from the company and a tender offer extended to employees and investors, according to people familiar with the matter. But the tender offer would represent a discount of 30% or more from Uber's last valuation of almost $70 billion, the people said.
Existing Uber shareholders have expressed concern that the process could devalue the company as it heads toward an initial public offering in as few as 18 months.
As part of the offer, SoftBank also is seeking two board seats, these people said, adding to Uber's nine sitting directors. Negotiations could conclude as early as next week, according to one person familiar with the matter. Representatives for Uber and SoftBank declined to comment.
The possibility of yielding so much control to SoftBank -- an aggressive investor that holds stakes in Uber's biggest rivals in Asia -- underscores the pressure faced by the San Francisco ride-hailing firm's board to appease a restless group of shareholders who want to unload stock after a trying year of scandals. Some directors view the funding as crucial to ensuring SoftBank won't weaken Uber by boosting competitors' war chests. In recent weeks, SoftBank held informal talks with Uber-rival Lyft Inc. over a possible investment, but the discussions never advanced, according to people familiar with the matter.
Even though an Uber investment would mean SoftBank is plowing money into rival firms in many markets, that is ultimately good for SoftBank if its investments are in a thriving market where more customers turn to ride-hailing firms, said Rushabh Doshi, an analyst for market tracker Canalys in Singapore. "It is better for SoftBank if there's healthy competition in the ride-hailing market," he said.
But the offer faces hurdles. SoftBank's hope of securing a sizable stake is dependent on investors agreeing to sell enough of their shares at a discount from Uber's last valuation through an auction process open to most shareholders, people familiar with the talks said.
That would value Uber at around $50 billion, though the price could change based on how many shares investors indicate they are willing to sell, these people said.
Some investors privately say they don't plan to sell any shares at the lower valuation, which could imperil the process. A few investors pointed to an August tweet from investor and venture-capital firm Benchmark, which also holds a board seat and a 13% stake valued at roughly $8.4 billion, as a reason to hold out for a higher valuation. Benchmark said Uber in two years "could comfortably be worth over" $100 billion. Benchmark's partners met with Mr. Son in a meeting in July, but the two sides were unable to reach an agreement on Uber's valuation, a person familiar with the matter said. Benchmark couldn't be reached for comment
As part of the deal, Softbank is planning a direct investment in Uber of at least $1 billion, which would be priced to reflect Uber's current valuation of about $68 billion, people familiar with the matter said. Such a move could placate existing investors concerned the auction process would devalue the company.
Other investors joining SoftBank include San Francisco investment firm Dragoneer Investment Group and New York private-equity firm General Atlantic, according to people familiar with the matter. Dragoneer and General Atlantic declined to comment. The exact terms of the investing coalition couldn't be learned.
Uber's board several weeks ago approved an exclusive negotiating period with SoftBank, granting the investor access to financial data about Uber, the people said. The potential investment has been a singular focus for Uber directors in recent days after successfully bringing in new Chief Executive Dara Khosrowshahi from Expedia Inc. last week, following the June ouster of Travis Kalanick.
The broad terms of the deal were reached prior to Mr. Khosrowshahi's start. He has dealt before with SoftBank, which earlier this month led a $1 billion funding round for online retailer Fanatics Inc., where Mr. Khosrowshahi is a director.
Bringing in SoftBank as an investor would further muddy an already confusing mix of alliances and competitors in the global ride-hailing business.
SoftBank has sizable stakes in four global ride-hailing outfits: China's Didi Chuxing Technology Co., India's ANI Technologies Pvt.'s Ola, Singapore's GrabTaxi Holdings Pte., and Brazil's 99. It has directors on the boards of Ola and Grab, and made one of its top investment executives Grab's president. Those two, along with Didi, are fierce competitors in their respective markets in India, Southeast Asia and China. Uber also holds a major stake in Didi.
Adding to the complexity is Saudi Arabia's Public Investment Fund, a sovereign-wealth fund that is a big investor in both Uber -- it infused $3.5 billion in the company last year -- and SoftBank's Vision Fund. The Saudi fund's managing director Yasir Al Rumayyan is on the board of both Uber and SoftBank, and on the investment committee for the Vision Fund. It is not clear what role he has had in the talks between the two firms. Representatives of the Saudi fund couldn't be reached for comment.
A big SoftBank stake wouldn't automatically lead to a push for control by the Japanese firm. Mr. Son sits on the board of Chinese e-commerce giant Alibaba Group Holding Ltd. -- in which SoftBank had a 30% stake as of March -- yet the company has agreed to vote with Alibaba management on appointment of other directors.
SoftBank bought chip-designer ARM Holdings for $32 billion last year, promising to respect the U.K. company's relationships with existing customers, some of whom are rivals to SoftBank's mainstay telecom operations.
But Mr. Son has also taken a very hands-on approach to management of other acquisitions, such as U.S. mobile carrier Sprint Corp., which he feels are struggling. Known to call branch managers the morning after daily sales figures dip, his leadership has prompted management overhauls and controversial strategy shifts at Sprint and Vodafone PLC's Japanese unit.
--Mayumi Negishi contributed to this article.
Write to Greg Bensinger at email@example.com and Phred Dvorak at firstname.lastname@example.org
(END) Dow Jones Newswires
September 15, 2017 02:47 ET (06:47 GMT)