Tormented Uber Could Find Its Future Road Smoothned By An Investment Deal With Softbank

Uber has managed to get an investment from technology billionaire Masayoshi Son’s firm SoftBank and the ride-hailing company is hoping that this would usher in a journey that would be less bumpy for it.

This is not the first time that SoftBank has made significant investments in the ride hailing company. the latest round of investments saw a number of shareholders of Uber agreeing to hand over their shares to a consortium led by SoftBank Group Corp.

Th latest round of investments would not only seal that position of the Chief Executive Officer Dara Khosrowshahi, but would also please some early, antsy backers and placate the management team as well as the board. The deal with SoftBank would also help to stop U.S. rival Lyft Inc. from engaging in any deal with SoftBank.

However, there is a price that Uber paid for all of these. The valuation of the company has been brought down from $69 billion during the last round of funding to about $48 billion this time around with investors including Dragoneer Investment Group, Tencent Holdings Ltd. and Sequoia Capital, along with SoftBank, purchasing the existing Uber stock at lower prices. $1.25 billion in new preferred stock is also being purchased by SoftBank at the higher valuation. SoftBank said that the deal would expectedly get closed in January.

“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 but didn’t offer any of its stake for sale. “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.”

While Lyft has been helped to get closer to profitability, increase market share in the U.S and enhance sale, rival Uber has been tormented by a number of scandals and instances of mismanagement at the top most level of the company this year. A threat that SoftBank could walk away from Uber and instead invest in Lyft if a good deal was not offered by Uber was issued by Son in November.

It is unlikely that any investments would not be made in the Uber rival by Son as SoftBank is slated to own shares of Uber worth billions of dollars soon.

Kahn said that despite the fact that investments in a number of Uber competitors have been made by Son in a number of other markets, following a similar strategy would not prove to be a judicious one in the U.S. market because of the intense competition between Uber and Lyft there.  “The key here is to create incentives not to embolden a competitor,” he added.

(Adapted from Bloomberg.com)

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s