Uber grabs at deal to exit Southeast Asia

Agreement to sell to bigger rival marks second retreat from same arena

RIDE-HAILING firm Uber Technologies has agreed to sell its Southeast Asian business to bigger regional rival Grab, the firms said yesterday, marking the US company’s second retreat from an Asian market.

The industry’s first big consolidation in Southeast Asia, home to about 640 million people, puts pressure on Indonesia’s Go-Jek, which is backed by Alphabet’s Google and China’s Tencent Holdings.

A shake-up in Asia’s fiercely competitive ride-hailing industry became likely earlier this year when Japan-based SoftBank Group’s Vision Fund made a multibillion-dollar investment in Uber.

Uber will take a 27.5 percent stake in Singapore-based Grab and Uber chief executive Dara Khosrowshahi will join Grab’s board. Grab was last valued at an estimated $6 billion (R70bn).

The Competition Commission of Singapore said it has the mandate to review whether any mergers will result in a “substantial lessening of competition” and to take action, but it has yet to receive a notification from the companies.

For Grab, the deal will help its meal-delivery service, which will now merge with Uber Eats to compete with Go-Jek, according to a person close to Grab.

Go-Jek is a dominant player in Indonesia, the region’s biggest economy, and has rapidly expanded beyond ride hailing to digital payments, food delivery, on-demand cleaning and massage.

“Go-Jek is such a different app, with different behaviours, it is something I can’t see Grab competing with well in Indonesia for a long time, like at least a year,” said Vinnie Lauria, partner at Southeast Asia’s Golden Gate Ventures.

Ride-hailing companies throughout Asia have relied heavily on discounts and promotions, driving down profit margins and increasing pressure for consolidation.

Uber, which is preparing for a potential initial public offering in 2019, lost $4.5bn last year and is facing fierce competition as well as a regulatory crackdown in Europe.

Uber invested $700 million in its Southeast Asia business, less than the $2bn it burned through in China before ceding its operations there to Didi.

Uber anticipated making more deals with rivals, but said that it had no plans to do another sale in which it consolidates its operations in exchange for a minority stake in a rival.

A source familiar with Uber’s strategy said that the company was going to step up its battle with Ola in India, another competitive and costly market, where rivals have heavily subsidised rides in an effort to gain market share.

Uber has close to 60 percent of the market there, by some estimates.

India accounts for more than 10 percent of Uber’s trips globally, but the company is not making money there yet.

Uber previously retreated from China and Russia under former chief executive Travis Kalanick. The deal with Grab is the first operations sale by Khosrowshahi, who started in September.

Rajeev Misra, chief executive of SoftBank’s Vision Fund, had urged the company to focus less on Asia and more on profitable markets such as Latin America, according to a person familiar with the matter.

He saw opportunities for mergers and joint ventures between SoftBank-backed ride-hailing companies, particularly for collaborating on research and development, but the investor would never get actively involved with management decisions, the person said.

SoftBank is also one of the main investors in other ride-hailing firms.

A Grab spokesperson said all Uber employees in its Southeast Asia operations would be offered employment in Grab.