Uber-Softbank Deal At A Discount: Here’s What Analysts Say About It

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The Uber-Softbank deal that was reported last month has apparently passed a vote of Uber shareholders. Softbank is buying an approximately 15% stake in the ride-sharing firm at a discount, as was expected, but analysts expect the benefits for Uber to be strong enough to warrant the discount.

Details of the Uber-Softbank deal

According to a statement on the Uber-Softbank deal, the Japanese telecom giant is leading the consortium that’s buying the approximately 15% stake in the ride-sharing firm for at least $8 billion. The majority of the shares will be bought from early investors. The Uber-Softbank deal values the ride-sharing firm at approximately $48 billion.

That’s a discount from the valuation Uber garnered in its last round of fundraising, but since Softbank is purchasing shares from the company’s early investors, this isn’t considered to be a major problem because they should still see a gain from selling those shares.

The Uber-Softbank deal is expected to close sometime in early 2018, and it will be completed in two parts. The second part of the deal has the consortium purchasing approximately $1.25 billion worth of new Uber shares valuing the company at nearly $70 billion. That’s close to the valuation attached to Uber in its most recent round of fundraising, reports the BBC. In addition to Softbank, the consortium is also said to include Chinese Internet giant Tencent Holdings and Dragoneer Investment Group.

Improving corporate governance at Uber

Uber management said they plan to use the funds to expand, invest in additional technology and “strengthen” the company’s corporate governance. One of the terms in the Uber-Softbank deal involves increasing the size of Uber’s board to 17 directors from the 11 directors currently sitting on the board. The Softbank-led consortium will appoint directors to fill two of the additional board seats.

Uber has spent much of this year battling a series of legal challenges, including some problems linked to former CEO Travis Kalanick. Although he was ousted from the post over the summer, his influence remains strong, and he retains a seat on the board. His strong influence has been a concern since his ouster, so adding six more directors should reduce that influence.

The other issues faced by the ride-sharing firm this year include sexual harassment allegations, regulatory investigations, and a lawsuit with Google’s Waymo which alleges that Uber stole autonomous vehicle technology.

Here’s what analysts have to say about the Uber-Softbank deal

In addition to Uber, Softbank has also invested in China’s Didi Chuxing and Southeast Asian taxi-hailing app Grab. CLSA analyst Oliver Matthew said in a note that the Uber-Softbank deal gives the Japanese telecom giant a chance to prove that its Vision Fund, which is its venture capital arm, can provide synergies and is much more than just a venture capital fund. He explained that if things play out as expected and the investment results in “significant” improvement at Uber, the holding-company discount currently linked to Softbank’s Vision Fund could be narrowed.

He also expects the deal to result in some kind of consolidation in India, where another company Softbank backs, Ola, competes with Uber. Further, he sees the potential for Softbank to leverage Uber and other ride-sharing firms as logistics solutions.

Matthew expects Uber to benefit from the Softbank deal by fetching a much higher valuation in an initial public offering than what Softbank is paying. Current Uber CEO Dara Khosrowshahi has said he hopes to take Uber public in 2019, and he backed the board shake-up included in the deal’s terms. Additionally, he believes Softbank will be able to help Uber develop its technology, possibly by discussing opportunities with Google and Waymo to deploy Waymo’s technology at some point.

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