But here’s how they’ll pull a bag over the public’s head about Uber’s “valuation” mirage for the IPO.
Uber has a “valuation” of $68 billion, based on a complex deal made between a small number of investors and the company behind closed doors at the last round of funding in June 2016. This “valuation” was instantly leaked to the press for publicity and hype purposes.
Now comes a real buyer with a real offer, and some potential sellers said they’ll accept it.
SoftBank Group Corp., an acquisitive junk-rated Japanese holding company, along with investment firms Dragoneer Investment Group and General Atlantic are offering to buy at least $6 billion of the shares of Uber held by employees and early investors. At $33 a share, the price values the scandal-plagued company at $48 billion. This would mark a 30% discount from the last “valuation.”
“According to people familiar with the deal,” cited by Bloomberg, SoftBank and its partners would acquire 14% of Uber with this tender offer that is expected to start on Tuesday and could drag on for 20 business days, “the people said.”
This part of the deal would not raise any money for Uber itself but would allow employees and early investors to unload their shares. So it would represent a meeting of the minds of actual sellers and actual buyers.
Some Uber shareholders have already agreed to sell shares at this price, but it is not clear yet if SoftBank can buy all the shares it is offering to buy at this price. If unsuccessful, it could raise the price or abandon the deal and walk away.
But to maintain the cloak of the previous “valuation” of $68 billion, SoftBank would also make a $1-billion direct investment into Uber at the previous “valuation.” Since startup “valuations” are based on the price paid when direct investments are made during a fund-raising round, this $1-billion deal would mark Uber’s new “valuation,” which would therefore be the same as the prior one.
The $14 billion of shares that actually sold for 30% less just disappears from sight, and the “valuation” propaganda remains intact.
This is crucial for the IPO. Earlier in November, Uber’s new CEO Dara Khosrowshahi said he expects Uber to go public in 2019. So it’s time to get all the ducks in a row. And no one wants to see a “valuation” slashed before what will likely be the most fiercely hyped no-holds-barred IPO spectacle in US history.
If successful, both deals combined – the $14 billion and the $1 billion – would make the SoftBank-led group one of the largest Uber shareholders, the people said.
And there’s some corporate politics involved too, according to Bloomberg: Getting this SoftBank deal done “has been a top priority” for Khosrowshahi, “who sees the deal as chance to close rifts and land a powerful new ally.”
According to Bloomberg, the group would also receive two board seats. The Wall Street Journal has a different take on the board changes and the politics:
The investment deal, if successful, would transform the corporate structure of the world’s most valuable startup by adding as many as six directors and a series of voting changes, while bringing some stability to Uber after a year of turbulence.
SoftBank, which owns about 80% of Sprint, already owns stakes in other rideshare startups, including in 99, the largest rideshare company in Brazil, and in Didi Chuxing, the largest rideshare company in China. That SoftBank would go after Uber – and thus magnify its bet on the rideshare industry – would be a logical next step in this context.
But what is fascinating is how the 14% stake – the shares acquired from employees and early investors – is supposed to happen at 30% off the former $68-billion “valuation,” while the much smaller $1 billion direct investment is supposed to make sure that the entire mirage of that former “valuation” continues to be trotted out intact.
New bicycle-sharing startups in China, with tens of millions of dollars in funding, suddenly run out of cash and collapse. Read… China’s Bike-Share Startup Frenzy Turns into Money-Suck
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate “beer money.” I appreciate it immensely. Click on the beer mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.