Uber and Softbank are reportedly close to striking a deal in which the Japanese conglomerate will buy a multibillion-dollar stake in the ride-hailing giant.
The deal could be worth as much as $10 billion, and key players are expected to sign it Sunday, according to Bloomberg, which said the terms include corporate governance reforms. News of the deal comes after Uber’s board, with an eye toward getting funding from SoftBank, voted to overhaul its corporate governance and create incentives for the company to have an initial public offering in 2019.
SoftBank plans to buy some newly issued shares as well as make a tender offer for existing shares, the New York Times reported. The bulk of the purchase, it said, would be through the tender offer.
What’s in it for Uber?
First off, the deal would bring in money, which Uber could use to help fund expansion and its costly ride-hailing operations amid growing competition from U.S. rival Lyft.
But perhaps more important, it could help bring peace to a company defined in 2017 by scandal and infighting.
According to Bloomberg and the Wall Street Journal, the long-anticipated SoftBank investment could soon be finalized because of an accord between former chief executive Travis Kalanick and early Uber investor Benchmark.
Kalanick resigned as CEO in June after a string of controversies, including a lawsuit by Google self-driving-car spinoff Waymo alleging theft of trade secrets; a lawsuit by a woman in India who alleged Uber obtained her medical records after she was raped by one of the company’s drivers; and widespread allegations of sexual harassment at the firm.
Benchmark filed suit against Kalanick in August, alleging that the Uber co-founder committed an act of fraud when he persuaded the board in 2016 to give him appointment power over three new board seats without first informing them of scandals that would soon consume the company and lead to his forced resignation.
The two financial publications both reported Sunday that Benchmark had agreed to drop its lawsuit against Kalanick, clearing the way for the SoftBank deal.
Putting to rest the spat between Kalanick and Benchmark could help Uber’s new CEO, Dara Khosrowshahi, lead the company away from a period of tumult.
A third benefit is that Uber would get connected with SoftBank — a hugely influential Japanese corporation that has a lot of money it wants to put into tech firms.
So, what exactly is SoftBank?
SoftBank is a Japanese multinational corporation best known as a domestic telecom and internet service provider. But its founder and chief executive, Masayoshi Son, has also pushed it to aggressively invest in overseas companies across different categories. It bought Sprint in 2013 for $20 billion. It was an early investor in Yahoo and Alibaba. It put $4.4 billion into New York commercial real estate startup WeWork in August. And it has invested in ride-hailing companies across Asia such as Didi Chuxing, Grab and Ola.
It’s also in the process of distributing a $100-billion “Vision Fund” (with money from Apple, Foxconn and the investment funds of Saudi Arabia and the United Arab Emirates), and claims it will put together an even larger follow-up fund, for global investments.
That seems … all over the place?
SoftBank isn’t interested in being just a telecommunications company, according to analysts and business experts who have followed its evolution. Even though it got its start in 1981 as the mobile phone division of Japan Telecom and later bought Vodafone Japan, its South Korea-born chief executive has always had an eye on the rest of the world.
“SoftBank is an incredibly unique company in Japan in the sense that it is very aggressive, both domestically and internationally,” said Jesper Koll, chief executive of WisdomTree Investments’ Japan unit. “It’s very much driven by Masayoshi Son.”
Unlike Japan’s conservative business leaders, the 60-year-old Son is described by analysts as an outsider given to bucking the trend. A UC Berkeley alum with an engineering background, Son was quick to embrace the “American venture capital and networking style.”
“He’s an upstart and he’s completely not Japanese establishment,” Koll said.
What’s Softbank’s goal?
“SoftBank wants to be a global leader in tech,” said Kirk Boodry, an analyst with New Street Research who has covered the telecommunications industry in Asia. “And I don’t mean just in internet. They look all the way up and down the value chain.”
The company’s investments span industries such as telecommunications, finance, media, e-commerce and transportation, with bets on companies that Son believes could be major players in the coming years, decades or even centuries.
“He’s laid out a 300-year plan for SoftBank,” James Moore, director of Georgetown’s Business, Society and Public Policy Initiative, said of SoftBank’s CEO. “That’s one of the things that’s been unnerving for some of the outfits that have put up money for him — he’s not getting a return on investment in the next 24 hours. He takes the long view. Like with his investment in Alibaba, he’s looking for opportunities he can invest in today, recognizing that their returns can be massive down the road.”
Analysts see the acquisition of Sprint as one such investment. The U.S. telecom might be ranked fourth in the country, but with the right merger or acquisition, it could potentially give AT&T and Verizon a run for their money.
SoftBank’s investments across multiple on-demand transportation companies — many of which are rivals — are also seen as part of a long play. In the event that ride-hailing turns out to be a winner-takes-all industry, SoftBank will at least have backed the winning horse. And if there’s room for two, SoftBank wins, too.
Isn’t it weird that SoftBank invests in companies that compete with each other?
“It’s extremely unique,” Moore said. “For American entrepreneurs, there’s a certain competitiveness. Steve Jobs would not have invested in Bill Gates. We pit companies against one another and see who comes out.”
That has been the case with the U.S. on-demand transportation industry, too. Venture capital firms that invest in Uber generally do not also invest in its rival Lyft.
For Son, though, investing is less about pride and more about getting the most value out of something, analysts said.
In Japan, the company has facilitated numerous mergers, and it’s “always trying to figure out how to win through consolidation,” said Hans Tung, managing partner at GGV Capital, an Alibaba investor that saw firsthand how SoftBank helped the Chinese e-commerce company grow.
Overseas, SoftBank secured itself a stake in China’s largest taxi app by investing in Kuaidi Dache, which in 2015 merged with rival Didi Dache. The combined entity later acquired Uber’s China business and renamed itself Didi Chuxing.
By investing in Uber, SoftBank would have a stake in the biggest ride-hailing players across Asia and the West.
Is SoftBank about to become a household name in the United States?
It’s easy to forget that SoftBank owns Sprint. But the company was harder to ignore last December when Son was seen shaking hands with then-President-elect Trump in Trump Tower, promising to bring some 50,000 jobs to the United States and invest $50 billion from SoftBank’s $100-billion Vision Fund in American businesses.
“When you’re walking in the door with $100 billion, you’re the 800-pound gorilla in the room,” said Moore.
And while it’s an impressive sum of money, analysts don’t believe SoftBank will pose a threat to other major players in the United States anytime soon.
“When you look at SoftBank in terms of the global internet universe, it’s not that big,” said Boodry. “Amazon, Google, Facebook, Alibaba and Tencent all have market caps of more than $450 billion, whereas SoftBank’s is around $100 billion.”
What Son does have going for him is a strong investment track record, said analysts, many of whom are confident that the Vision Fund will at the very least make back its money.
Another thing he has going for him: Nobody else is bringing close to $100 billion to the private equity and startup table, and few firms are investing as ambitiously around the world. It might not pay off right away, analysts said, but SoftBank is playing the long game — 300 years long, in fact.
By LA Times