Uber's SoftBank deal may smoothen way for scarred startup


Tech­nol­ogy bil­lion­aire Masayoshi Son just hitched a ride with Uber. But it's the ride-hail­ing com­pany that's start­ing what it hopes is a new, less-bumpy jour­ney.

Uber Tech­nolo­gies Inc. share­hold­ers agreed to sell a size­able stake in the startup to a group led by SoftBank Group Corp., adding to the al­ready huge in­vest­ments Son's com­pany has made in the global ride-hail­ing busi­ness.

The deal an­nounced Thurs­day will bring new cash to Uber, pre­vent arch US ri­val Lyft Inc. from deal­ing with SoftBank, ap­pease some early, antsy back­ers and pacify a pre­vi­ously war­ring man­age­ment team and board, while so­lid­i­fy­ing the lead­er­ship of chief ex­ec­u­tive of­fi­cer Dara Khos­row­shahi.

All of that comes at a price: SoftBank and in­vestors, in­clud­ing Dragoneer In­vest­ment Group, Ten­cent Hold­ings Ltd and Se­quoia Cap­i­tal, are buy­ing ex­ist­ing Uber stock at a val­u­a­tion of about $48 bil­lion-well be­low the last fi­nanc­ing round at $69 bil­lion. SoftBank is also pur­chas­ing $1.25 bil­lion in new pre­ferred stock at the higher val­u­a­tion. The trans­ac­tion is ex­pected to close in Jan­uary, SoftBank said.

"As an in­vestor we are pretty sup­port­ive of the deal," said Jay Kahn, a part­ner at Light Street Cap­i­tal Man­age­ment LLC, which owns Uber shares and didn't ten­der any of its stake. "It re­ally makes SoftBank fi­nan­cially and strate­gi­cally mo­ti­vated to sup­port Uber in ev­ery ca­pac­ity. If the trans­ac­tion didn't go through, they could have al­lo­cated a sig­nif­i­cant amount of cap­i­tal to Lyft."

A se­ries of mis­steps and man­age­ment tur­moil dis­tracted Uber this year while help­ing Lyft gain mar­ket share in the US, boost sales and get closer to prof­itabil­ity. In Novem­ber, Son said SoftBank might walk away if he didn't get a good deal and shift the in­vest­ment to Lyft.

With SoftBank soon own bil­lions of dol­lars to of Uber shares, Son is un­likely to in­vest in the com­pany's main ri­val. Son has backed com­pet­ing ride-hail­ing com­pa­nies in other parts of the world, but the race is so in­tense in the US that a sim­i­lar strat­egy would likely back­fire, Kahn said. "The key here is to cre­ate in­cen­tives not to em­bolden a com­peti­tor," he added.

The trans­ac­tion also gives early Uber in­vestors a chance to cash out. Ven­ture cap­i­tal firms typ­i­cally don't like to hold in­vest­ments for more than a decade be­cause that's when they have to re­turn money to their own back­ers. Uber has been around since early 2009, and isn't ex­pected to go pub­lic un­til at least 2019, so the time is right. Bench­mark, one of Uber's largest early back­ers, also clashed with former CEO Travis Kalan­ick over how the com­pany was run, and was a prime pro­po­nent of the gov­er­nance re­forms at­tached to the deal.

Mean­while, SoftBank will get two seats on the board and sup­ports the new CEO, mak­ing it clearer who's in charge.

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