Uber to sell Southeast Asia business to rival Grab

Uber to sell Southeast Asia business to rival Grab
PHOTO: Reuters

[March 26, 10am]: This article has been updated with details from a press release issued by Grab on Monday morning.

Ride-hailing firm Uber Technologies has agreed to sell its Southeast Asian business to bigger regional rival Grab, sources with knowledge of the matter said on Sunday, in what would be the US company's second retreat from Asia.

The deal, which could be announced as early as Monday, marks the industry's first big consolidation in Southeast Asia, home to about 640 million people, and puts pressure on rivals such as Indonesia's Go-Jek, backed by Alphabet's Google and China's Tencent Holdings.

Grab announced on Monday that it will integrate Uber’s ridesharing and food delivery business in the region into Grab’s existing multi-modal transportation and fintech platform.

As part of the transaction, Uber would get a stake of 27.5 per cent in the combined business, said a source with direct knowledge of the matter who did not want to be identified as the deal is not yet public.

Another source familiar with the deal said Uber would acquire a 25 per cent to 30 per cent stake in Grab, valuing the entire business at US$6 billion (S$7.8 billion), the same valuation it commanded in its most recent capital raising.

Uber CEO Dara Khosrowshahi will also join Grab’s board.

In a statement released on Monday morning, Grab's co-founder Tan Hooi Ling said that they plan to rapidly expand food delivery service GrabFood into all major Southeast Asian countries in the next quarter.

"We’re going to create more value for our growing ecosystem of consumers, drivers, agents - and now merchants and delivery partners.

"GrabFood will also be another great use case to drive the continued adoption of GrabPay mobile wallet and support our growing financial services platform," said Ms Tan.

FIERCE COMPETITION IN ASIA, CRACKDOWN IN EUROPE

Expectations of consolidation in Asia's fiercely competitive ride-hailing industry were stoked earlier this year when Japan's SoftBank Group made a multi-billion dollar investment in Uber.

SoftBank is also one of the main investors in several of Uber's rivals, including Grab, China's Didi Chuxing, and India's Ola.

Ride-hailing companies throughout Asia have relied on discounts and promotions to attract both riders and drivers in the fast-growing market, driving down profit margins.

Uber, which is preparing for a potential initial public offering in 2019, lost US$4.5 billion last year and is facing fierce competition at home and in Asia, as well as a regulatory crackdown in Europe.

It is also recovering from a year of scandals that saw co-founder Travis Kalanick forced out as chief executive in June amid US criminal inquiries and a workplace marred by sexual harassment allegations.

SoftBank gained two seats on Uber's board of directors through its investment and has said it wants the company to focus on growing in the United States, Europe, Latin America and Australia, but not in Asia, due to the lack of profitability.

Uber's CEO Dara Khosrowshahi said at a conference in New York in November that the company's Asia operations were not going to be "profitable any time soon," particularly because of how heavily Uber was subsidising rides there.

"The economics of that market are not what we want them to be," he said at the time.Mr Khosrowshahi, who took over the top job at Uber in August, has been working to clean up the company's financials ahead taking it public. Still, during a visit to India in February, he pledged to continue investing aggressively in Southeast Asia.

Now that Uber is pulling out of Southeast Asia, attention may turn to the company's operations in India, which accounts for more than 10 per cent of Uber's trips globally, but is not making money yet.

Uber's deal with Grab would be similar to the one struck in China in 2016, when a bruising price war ended in Didi Chuxing buying out Uber's China business in return for a stake in the company.Grab raised about US$2.5 billion last July from Didi, SoftBank and others in a deal valuing the company at around US$6 billion.

Bloomberg first reported the deal.

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