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Grab’s Acquisition of Uber’s South-East Asian Business


Overview of the deal

- Acquirer: Grab Taxi Holdings - Advisor: The Raine Group

- Target: Uber Inc. SE Asia Ops. - Undisclosed Advisor

- Announcement date: March 2018

Following a year of difficulties for Uber, Dara Khosrowshahi stepped in as CEO in August 2017, effectively assuming responsibility to resolve Uber’s various issues and help the company go public. In light of these events, a consortium of investors led by Japanese tech conglomerate SoftBank has closed a deal to purchase shares from existing Uber employees and investors at a discount, making Uber’s valuation drop from $68 bn to $48 bn. Following this agreement, Softbank now holds more than 15% of Uber, thus becoming the firm’s largest stakeholder.

Softbank has reportedly repeated its ambition to refocus Uber’s activities on its core markets, namely the U.S., along with Europe and Latin America, as an aim to help the company achieve profitability more quickly before its IPO. In 2016, Uber exited the Chinese Market by selling its local operations to ride-hailing super-giant DiDi, after admitting defeat in an aggressive price war. In 2017, Uber agreed to merge its Russian business with rival Yandex. Thus, Uber’s decision to exit from the South-East Asian market follows the company’s strategic path to shift its efforts from growth and expansion to profitability. As part of the deal, Uber will receive a 27.5% stake in Grab in exchange for Uber’s ride-hailing and food delivery businesses in 8 South-East Asian countries. Moreover, Uber’s CEO Dara Khosrowshahi will join Grab’s board.

“[Uber] strategically retreated from Southeast Asia and Russia in exchange for equity stakes in competitors Grab and Yandex, respectively. Uber continues to compete in Brazil and India, but this kind of a strategic decision-making demonstrates that Uber is no longer focused solely on growth and world domination. It may even be finally focused on profits.” -Tim J. Smith, Fortune

Company details (Grab)

Grab is a ride-hailing and carpooling service which is currently operating in 220+ cities across 8 countries in South-East Asia.

- Founded in 2012, headquartered in Singapore

- President and CEO: Anthony Tan

- Number of employees: 1,000-5,000

- Latest Valuation: $6bn

- FY17 Revenue: $1bn

Company details (Uber Technologies Inc.)

Uber Technologies Inc.’s online platform and mobile app provide customers with car transportation and food delivery services in more than 65 countries and 600 cities worldwide.

- Founded in 2009, headquartered in San Francisco, CA

- CEO: Dara Khosrowshahi

- Number of employees: 16,000

- Latest Valuation: $48bn

- FY17 Revenue: $7.5bn* - FY17 Adjusted EBITDA: -$2.5bn*

*These numbers are approximations based on non officially disclosed information because Uber is a private company

Projections and assumptions

  • Short-term consequences

Besides from benefiting from the removal of its most direct competitor, Grab would be able to draw Uber’s customer base, drivers and employees, which would bring Grab closer to making a profit.

One crucial part of the agreement relies in Grab’s potential ability to hire an estimated 500 of Uber’s soon-to-be former employees. To follow through, Uber’s management has forbidden employees to move internally to different geographies. On top of that, Uber has placed several restrictions on its South-East Asian exiting employees. Under these new constraints, Uber staff would not be eligible for exit bonuses, should they work for a different employer other than Grab.

This would arguably allow Grab to draw these recruits and avoid competitors such as Indonesian ride-services firm Go-Jek or food delivery servicers Deliveroo and FoodPanda from bringing in Uber’s former employees. Regardless, Go-Jek is putting efforts into recruiting Uber talent. Other tech companies, such as Facebook, WeWork, Google and Netflix have started arranging interviews with Uber’s departing Southeast Asia staff in an effort to hire new talent. This is precisely what Grab was trying to avoid.

  • Long-term upsides

Unlike Uber’s exit from China which was merely a consequence of Uber’s defeat to DiDi, Uber’s merger deal with Grab is more of a win-win deal. There are indeed solid gains for both parties. First of all, the deal will benefit SoftBank and DiDi, who, among others, own large stakes in both Uber and Grab. The merger will put an end to an expensive subsidy war, which until this point resulted in losses on both sides.

Grab will be able to shut down competition and expand its business, while Uber will have the ability to focus its efforts and resources on different regions. Uber’s 27.5% stake in Grab, worth close to $1.6 bn, is a strong return on Uber’s up-to-date $700 million investment in Southeast Asia. Considering that Grab now sits on a near perfect monopoly in the region, with the sole exception of Go-Jek’s home market Indonesia, and that the ride-hailing market is projected to grow substantially in the years to come, Uber’s $1.6 bn stake is likely to appreciate in value.

Consumers have already felt the effects of this virtual monopoly. After finding that Grab rose fares after the merger, Singapore’s Competition Commission asked Grab to return to pre-merger pricing and end its drivers’ exclusive contracts, which prevented Grab drivers from working for other ride-hailing companies. This would effectively decrease barriers for new entrants. Several new players, such as India-based Jugnoo and Singapore-based Singa have in fact entered the Singapore ride-hailing market following the merger. Hence, despite Grab’s increased market power, the firm may still be met with competition in the future, which would drive prices down for consumers.

Risks and uncertainties

The deal still requires the approval of the local authorities in 8 different countries where Uber operates. The Competition Commission of Singapore (CCS), where Grab is headquartered, has expressed concern over the deal, as it may grant Grab a dominant monopoly in the region. Moreover, the Commission required that Uber and Grab “maintain pre-transaction independent pricing, pricing policies and product options”. Yet, there are substantial grounds to believe that the deal will go through, as the CCS defined Grab’s operating space as “chauffeured personal point-to-point transport passenger and booking services” rather than ride-hailing. That way, taxi companies in Singapore will be considered as competitors, which will significantly drive Grab’s market share down.

Another challenge lies in Uber customers and drivers’ reluctance to switch to Grab’s platform. This would provide an opportunity for Go-Jek to step-in, as the servicer recently announced its ambition to expand its activities outside of its Indonesian home-market across all of South-East Asia. Go-Jek launched its business in Vietnam on August 1st, 2018, and in less than a month, has already taken 15% of the market share in Ho Chi Minh, Vietnam’s second largest city, according to Go-Jek CEO Nadiem Makarim. The startup will also expand to Thailand in September, and is set to enter the Philippines by the end of 2018. This sets considerable pressure on Grab, more so as local market authorities may place restrictions on Grab’s business, as the CCS already did in Singapore.

“Together with Uber, we are now in an even better position to fulfill our promise to outserve our customers. Their trust in us as a transport brand allows us to look towards the next step as a company: improving people’s lives through food, payments and financial services.” -Anthony Tan, Grab CEO and Co-Founder

© The MergerSight Group. 2018. All rights reserved.


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