
Buffett Proposed $3 Billion Uber Investment But Deal Crumbled - tristanj
https://www.bloomberg.com/news/articles/2018-05-30/buffett-said-to-have-offered-uber-3-billion-but-talks-crumbled
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davnicwil
Here's a question: is there a kind of equilibrium that private companies like
Uber can risk breaking in terms of ultimate public valuation by staying
private for too long and taking too much investment pre-IPO?

If would-be shareholders have seen Buffet type investors going in (or
attempting to go in) with absolutely colossal cash injections pre-IPO, might
it appear like too much of the explosive growth potential has already been
squeezed out before the IPO? And therefore there is less incentive to buy the
stock speculatively, making the stock price lower at IPO. Isn't this a bad
thing for investors looking to get in late stage? Put another way, could
Buffet's investment have actually risked its own likelihood of eventually
paying off, due to its size?

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alehul
It could be the case, but quite unlikely.

As Buffett is a value investor, there's a very simple set of rules he follows
that I recall learning from a similar-minded portfolio manager:

1) set a price the company should be valued at

2) pay less than that price

3) don't be wrong

So while Buffett's investment would be colossal and substantially raise the
price of the company, all that investment says is that he thinks it is
currently undervalued, and he likely isn't trying to throw enough money in
Uber's direction to fix the entire pricing error, from a finance standpoint.

There would actually likely be more damage caused if value investors publicly
turned down investing in a pre-IPO company.

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gtt
Could someone explain what got Buffet interested in Uber?

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TAForObvReasons
Buffett's general MO is to find distressed or other undervalued companies and
offer a large chunk of money, negotiating very favorable terms.

Take their deal with Bank of America, wherein they received preferred stock
which paid 6% annual dividend (so they end up higher up the capital structure
than the common) as well as a dilutive warrant to purchase 700M shares of
common stock at a strike price of about $7 at any time until 2021 (currently
at 29.49)

The article answers why the deal went sour:

> Coming so soon after that cash infusion, Buffett’s attempt to take a stake
> in Uber while it was on the rocks may have been too late to squeeze
> favorable terms from the company.

Buffett probably couldn't get the type of deal he wanted, mostly because they
were able to secure cash independently.

~~~
taneq
> Buffett's general MO is to find distressed or other undervalued companies
> and offer a large chunk of money, negotiating very favorable terms.

Are there other viable strategies for a large investor? I can't imagine it's a
very good plan to pay market value for shares in companies that are already
currently very successful. By definition you're buying "at the top".

~~~
pg314
Buffett bought 75 million Apple shares last quarter, paying market price for a
very successful company. His investment philosophy is based on making the
distinction between the market price of something and its intrinsic value, and
looking for discrepancies between the two [1].

[1] [https://www8.gsb.columbia.edu/articles/columbia-
business/sup...](https://www8.gsb.columbia.edu/articles/columbia-
business/superinvestors)

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known
Buffet investment tricks are subtle
[https://en.wikiquote.org/wiki/Warren_Buffett](https://en.wikiquote.org/wiki/Warren_Buffett)

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fwdpropaganda
How is it possible that Uber has $6.5bn in cash? Weren't they losing almost
$4bn a year?

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TAForObvReasons
[https://www.crunchbase.com/organization/uber](https://www.crunchbase.com/organization/uber)

> Total Funding Amount: $21.7B

The real question is how companies thought it was a great idea to invest in
them to the tune of $21.7B.

~~~
huangbong
Worldwide consumer transportation monopoly

~~~
fwdpropaganda
There's no barrier to entry.

Some people claim that there is a barrier to entry which is that "Uber has all
the drivers". However every big city I go you see local players. Not only Lyft
and Yandex, but regular cabs, or regular cabs dispatched by an app (as opposed
to telephone) etc.

No barrier to entry.

~~~
valuearb
No barrier to entry, yet despite two years of the most horrendous (and self
inflicted) press imaginable, Uber still has a massively dominant position?

Reminds me of another company with no barrier to entry, Coke. It’s massive
profits led Sam awaiting to spend millions creating Sams Cola, which crushed
Coke in taste tests and got massive distribution from the get-go. And utterly
failed.

If you can understand the massive barriers to entry Coke really had, you’ll
begin to understand how massive Uber’s competitive barriers are.

~~~
peteretep
> Uber still has a massively dominant position

Are you confusing America for the world? Uber's position is not massively
dominant in Europe, and they've pulled out of SE Asia with their tail between
their legs because of a competitor.

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valuearb
MyTaxi is neck and neck with Iber in Europe, but doesn’t exist in the US. Even
after leaving a bunch of countries, overall Uber is by far the biggest rife
sharing company in the first world. It’s beating Lyft in the US by more than
5-1.

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bklyn11201
Two questions:

1) Uber really needs 2008-style, extreme-terms cash right now?

2) Buffett team must be fairly annoyed with Uber's negotiating to leak the
story?

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valuearb
1) No, this is old news. Uber has years of cash. 2) if Buffett was annoyed he
would not be commenting.

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bertil
Well, Uber lost 4 billions, and has 6.5 in the bank + 1.5 promised, so two
years. “Years” is technically correct, but with their burn rate and at this
scale, I would not snub billionaires in their position.

I understand (from drawing similar models at Deliveroo) that you can actually
predict quite well your demand, efficiency, maturity by city and have rather
accurate loss prediction, and I suspect that Uber expects to loose less than 3
billions in 2018 (and try very hard to be profitable in the last quarter of
2019 prior to their IPO), and with that in mind, “years“ makes more sense,
but… that’s like when a test pilot says ‘things are fine’ inches from
disaster: still not a ride for everybody.

