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? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
seems like to apply a certain discount on the purchase of “old” share is a generally accepted concept which cashes out existing shareholder in a faster way as they don’t have to wait until IPO.
Of course that’s how it’s done. The idea is always to hype the “valuation” and push it to the maximum and not allow any sense of reality (what shares trade for when they’re traded, including in a situation like this or in the secondary market) to impact that hyped “valuation.”
Does softbank see a big pump and dump potential after/during the IPO???
I believe most early investors in Uber would want this deal to go through given its stratoshperic valuation with no IPO in sight, no tangible profits made and nothing but hype and the level of illiquidity of investment. I’d say its a STEAL
Funny story just because Uber was involved. A sweet, but gullible, co-worker asked me one day if I knew what Uber was. She said her husband had made $250 Saturday night. With a straight face I said “I know what Uber is, a male escort service.” Her face went from excitement to a concerned puzzled look. Our co-workers burst out laughing. Maybe they can turn profitable with my new business model for them.
Uber is a few pieces of software that do scheduling, and not much else.
Cost for programmers to write a replacement way under $48 million with an M not Billion with a B.. $48 million plus marketing hype is what its worth.
I never understood what was so special/disruptive about a taxi company with an app. You (Martin) are right, and any taxi company can get a top notch app done for a few million (including backend processing). Even though the UK has branded their (Uber) use of “gig economy” contractors as slavery, most taxi drivers already don’t make huge amounts. So I can’t see anything disruptive, novel or new about them that the incumbents can’t, or aren’t already doing. So it is just all marketing. All it would take is an Apple or Google to create an app and partner with lots of existing taxi companies and that $68B valuation would look ridiculous. Perhaps the new app could be called iOople or Goober :-)
Sure. Although mytaxi and the like are a better example. Essentially they provide the dispatch and booking for existing taxi companies. So they are more specialist software providers to taxi companies
this the following concerning uber
bad Governance and management maybe the new ceo will do better.
What direction uber has to take to be profitable and can it be profitable is the plan is to make it another amazon with high valuation but no profit
Budget how much is it going to cost to finance self driving cars and will the company make any money with it?uber plan on invest 1 billion in self driving cars
Regulations around the world are getting tougher with the peer to peer economy uber will have to pay more taxes and comply with local laws if uber loses it,s license in London it could be a game changer for the peer to peer economy
Competition lyft is expanding and getting more and more popular there are in canada and will expand to europe
Uber should accept the friendly softbank offer uber is worth 40 dollars maybe less uber should expand it,s network in a friendly manner working with local authorities and buy the competition around the world
This seems a little odd. Uber had a Series G funding round in June 2016 where a $3.5 billion investment from Saudi Arabia’s Public Investment Fund resulted in this companies $68 billion valuation:
https://www.crunchbase.com/organization/uber/funding_rounds/funding_rounds_list
Now there is a new $6 billion funding round led by Softbank to buy the shares of Uber employees and early investors at a 30% discount from this last “valuation”. It’s odd because Saudi Arabia’s Public Investment Fund has pledged $45 billion to SoftBank’s Vision Fund, an amount which was supposed to come from the proceeds of its pending Aramco IPO:
http://www.foxbusiness.com/features/2017/06/06/saudi-cash-stirs-up-buyout-game-wsj.html
While Uber’s current valuations are likely fiction, it seems very unusual that an investor might be looking to literally ‘double down’ on a declining investment. Not sure what’s going on here.
Startups, like real estate, are valued at the margins. If Softbank is buying 14% of the company at $6B the new valuation is $43B, a 37% decrease. That last billion is going to have to buy a large percentage to bring it back up to its current valuation.
Delete: (I meant to say the opposite.)
That last billion is going to have to buy a large percentage to bring it back up to its current valuation.
Replace:
That last billion is going to have to a very small percentage to bring it back up to its current valuation.
P.S.
This whole “transaction” is a window into valuation divorced from performance.
At this rate people will only stop using Uber when it goes under. Honesty any other company with so bad PR would have already crashed and burned.
Well, ya gotta admit that they worked really hard to earn that reputation of theirs…
This smells like Enron. It runs like Worldcom. It squarks like a Madoff fund. If it looks like HealthSouth. Softank is going to to make billions!! Fuck yeah!!
Hi
For anyone interested @kateconger on twitter has the latest on today’s Waymo hearing at the Northern District of California.
Reporter for gizmodo…