
SoftBank Succeeds in Tender Offer for Large Stake in Uber - coloneltcb
https://www.wsj.com/articles/softbank-succeeds-in-tender-offer-for-large-stake-in-uber-1514483283?mod=e2twd
======
robhunter
Are they not just buying common stock or Series Seed/A/B stock from existing
investors?

I'm under the impression this is a totally different class of stock than the
$70B valuation round?

Common stock at a $49B valuation is entirely different from preferred stock at
a $70B valuation with what I'll assume includes a lot of "fine print" around
pro-rata and/or liquidation preferences.

Feels a little clickbait-y to say the valuation took a haircut when we're
talking about different classes of stock.

~~~
eddieplan9
This. It’s not uncommon to price the common shares differently in tender
offers. Facebook did almost the same thing in 2009: DST bought preferred share
at $10B valuation and then tender offer at 6.5B [1]

[1] [http://kara.allthingsd.com/20090713/facebookers-start-
cashin...](http://kara.allthingsd.com/20090713/facebookers-start-cashing-out-
with-new-100-million-investment/)

~~~
JumpCrisscross
> _It’s not uncommon to price the common shares differently in tender offers_

This tender was not restricted to common stockholders. Some preferred
stockholders, who bought in recent rounds, sold down or flat. Practically
nobody, if not absolutely nobody, who tendered common stock to DST in 2009
lost money on their original investment. The same isn’t true with Uber.

------
msoad
A few observations:

Softbank has stakes in Didi, Didi has stakes in Uber, Uber has stakes in Didi,
with this Softbank got stakes in Uber.

Uber is mostly successful in North America and Southern Americas. Didi is
obviously successful in China and will expand to Southern Americas soon.

Europe is not an important market for these companies. Too much regulations
and good public transportation won't allow them to thrive.

Softbank probably wants Uber to be limited to North America and have its
companies like 99 and Ola compete with Uber in their markets.

If Uber is limited to US and Canada and a few small markets here and there,
then it makes sense to see its valuation go down like this.

Softbank is competing with Uber in a global scale using a network of companies
it invested in, including Uber!

~~~
chx
> If Uber is limited to US and Canada

I fervently hope it's the US only. I will talk to my MLA and show him a nice
collection of news about Uber in hope they will not allow them to operate
their scam in Vancouver.

~~~
1undo
How is it a scam? It gave me a ride to the airport for $26 bucks. I took a cab
once and it cost over $50 bucks. My need some tweaks here and therem but
overall its a great service for customers

~~~
marenkay
The missing $24 were health insurance, car insurance, pension payments for the
driver etc. All not being paid.

Uber is no ride share service, it is a test project to figure out if modern
society will accept a larger lower income working class without any social
security, and that is what all investment firms bet on.

~~~
dragonwriter
> The missing $24 were health insurance, car insurance, pension payments for
> the driver etc.

Car insurance, maybe; car companies don't pay health insurance or pensions
either for their drivers, who are also characterized as contractors rather
than employees.

~~~
gaius
Nope, they are employees

[http://www.bbc.co.uk/news/business-37802386](http://www.bbc.co.uk/news/business-37802386)

Still waiting on the Inland Revenue to collect all that back NI tho’...

------
pwaai
I feel like this is another "Sprint" acquisition in the making for Masayoshi.
Uber like Sprint has

\- undefensible core business model

\- overvalued market cap

\- assumes capital markets will hold

[https://www.forbes.com/sites/abrambrown/2013/07/30/sprints-p...](https://www.forbes.com/sites/abrambrown/2013/07/30/sprints-
problems-brought-into-new-clearity-fall-to-billionaire-led-softbank-to-
solve/#587220977159)

To me, he's a risk-taker for the sake of taking risks. He has to be perceived
to be taking risks in the Japanese circles for some reason, but might be a
billionaire ego. While there were good picks like Alibaba, these capital
intensive acquisitions seems counter productive and during completely
different environments (early 2000s).

I don't mean to criticize Son Masayoshi for all he is, after all, he did
overcome poverty and a systematically racist Japanese society that severely
limited the economic activities of non-Japanese, purely based on blood. I just
feel like most of his North American acquisitions haven't turned out great.

------
jonknee
Still a heck of a return for early investors:

> Seed investors in Uber who sell to SoftBank will make a ~3600x return. $1.6
> million round in 2010 would now be worth $5.7 billion at offer price.

[https://twitter.com/alfredjlee/status/946443457039540225](https://twitter.com/alfredjlee/status/946443457039540225)

~~~
chatmasta
Should have invested in bitcoin instead! ;)

------
hinkley
In Japan, company struggles are first blamed on the management chain. Not the
employees, not bad luck. The people in charge. If new management can’t sort
things out then it must be they workers.

This also appear to apply to subsidiaries in other countries. Given the way
Uber has been going, next year is going to get interesting. Given Uber’s
struggles, if SoftBank follows the playbook, they won’t touch anything for a
full fiscal year. If things don’t improve, expect to see multiple executive
heads roll in the second fiscal year, all on the same day. In the third if
profits haven’t improved, expect a layoff of regular employees to make the
numbers work.

After that, depending on how aggressive they have to get, there could be a
whole other set of reasons not to want to work at Uber...

~~~
jdavis703
SoftBank has a minority, 15% stake. Will they really have enough authority and
juice with the other board members to execute a boardroom coup?

~~~
hinkley
Yeah I thought this was meant to be a bigger stake after the rumors and the
title. 15% is a large stake now, WSJ?

However as someone else pointed out SoftBank has ties to some of the other
investors, so who knows what the board room will look like.

~~~
jy1
15% is a HUGE stake... Even Kalanick has <10%

------
thisisit
> Other members of SoftBank’s bidding group are likely to buy part of the
> remaining shares on offer, the people said.​

Any ideas on who are these other members?

As for the question on whether this is a haircut on valuation is an
interesting one.

This is not exactly raising money from a VC rather through a secondary
offering, so Uber can still claim there is no down round. It's just that
people in public bidding sold on a discount. But, that is fine too as common
stock from early rounds are actually worth less than common stock from later
rounds.

[https://www.bloomberg.com/view/articles/2017-11-16/softbank-...](https://www.bloomberg.com/view/articles/2017-11-16/softbank-
thinks-some-uber-shares-are-worth-more-than-others)

> Since Uber's stock doesn't trade on an exchange, there is no public record
> of its value changing from day to day, and it can point to its last
> fundraising round as its still-current "official" valuation, whatever has
> happened since. But if it does a new round at a lower price, it won't be
> able to play that game any more. And as Uber gets closer to an initial
> public offering, that game becomes more important: It's harder to argue for
> an $80 billion IPO after a $50 billion private down-round.

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graton
If you can't read this article but you have a Facebook account then you can
create this as a bookmarklet:

    
    
      javascript:window.location.href='https://m.facebook.com/l.php?u='+encodeURIComponent(window.location.href);
    

Then go to the WSJ.com page and click the bookmarklet, it takes you to
Facebook, which then offers to take you to WSJ.com, and then you can read the
article.

~~~
danjoc
I have to have Facebook to access the web.

Net neutrality.

~~~
dragonwriter
This has nothing to do with net neutrality, it has to do with the WSJ’s
monetization model.and the fact that they selectively bypass it for Facebook
as a promotional strategy.

~~~
danjoc
Clicked the link. Didn't get content. Get a [Subscribe] button. Click it to
choose internet package monthly fee.

It's the exact nightmare scenario Net Neutrality supporters warned us about.
Packaged internet. No more free access.

------
scarmig
How often do companies come back from down rounds?

It seems like any company willing to take a down round is also fine with
taking a publicity hit and a hit to morale, which suggests it's in an even
worse spot compared to what the devaluation would suggest.

Is there precedent that suggests even that SoftBank will come out on top from
this?

~~~
discordianfish
Maybe I’m alone but my initial reaction was: “oh 30% doesn’t sound that bad”.

~~~
wpietri
It's really bad for anybody who has options. The last time Uber's valuation
was this low was 2 1/2 years ago. I don't know how Uber did employee equity,
but if it was options with a valuation based on the numbers we're seeing in
public, then somebody who joined 2 years ago would just have had their equity
stake drop to $0. And in some sense it's negative, in that even if the
valuation goes up modestly, their stake is still worthless. After putting up
with all the internal bullshit and the bad press, that'd be quite a kick in
the gut.

If that's what Uber is doing internally, then in practice I imagine they're
going to have to give out a lot more options to keep everybody happy.

~~~
pedrosorio
Uber has been making offers in RSUs for more than 2 years:
[https://www.reddit.com/r/cscareerquestions/comments/3u5asj/u...](https://www.reddit.com/r/cscareerquestions/comments/3u5asj/uber_rsu_offer/)

~~~
wpietri
Ah, good point. Here's confirmation of that from the NYT:
[https://www.nytimes.com/2017/03/03/technology/uber-said-
to-c...](https://www.nytimes.com/2017/03/03/technology/uber-said-to-consider-
changes-to-employee-stock-compensation.html?_r=0)

For the people who have options, some could still be entirely wiped out by
this, but it's not as big a problem for new hires.

It's still a problem, though. As the Reddit discussion makes clear, people are
benchmarking against things like Google. The equivalent equity package from
Google 2 years ago would have gained 30% in value, while the Uber one has lost
30%. Assuming $200k in equity from each place, that's $260k for Google and
$140k for Uber, or nearly a 2x difference.

That would sure make me think about jumping ship.

~~~
acchow
Uber was handing out 4x in fictional equity back then compared to Google's
real RSUs.

------
rpmcmurphy
If you want a forecast of how ridesharing companies will settle out, tear the
route map out of an inflight magazine. There is no global airline, but many
regional airlines that provide international connectivity to other regional
airlines.

It makes sense that each major region will have 2 or 3 dominant operators
including local taxis. In the long term, a local operator will have advantages
due to better local knowledge, government relations, etc.

Roaming agreements will take the equivalent of Star Alliance, and primarily of
value for international travelers. Most users will interact with their
preferred local operator. Note this has been tried already, but failed due to
parties not trusting each other, but will probably be tried again once
territories are more nailed down.

~~~
bsiemon
Does the cost in maintaining/paying for hub airports factor into why airlines
are regional? For example southwest has service over most of the US because
they use the older/cheaper airports vs United has hubs that don't heavily
overlap with American. I don't see the parallel with ride sharing here.

I think Uber/Lyft can take over the whole US since they don't need to maintain
much supporting infrastructure. Plus they can get economy of scale in
marketing.

------
NelsonMinar
What's the purpose of this $1B investment at a $70B fictional valuation given
that everyone knows the actual valuation is $48B? Does it make the tax
accounting better for someone somehow?

I'm with discordianfish in saying only 30% down sounds better than it could
have been for Uber.

~~~
ec109685
The 1B at 70B valuation is preferred stock.

~~~
smallnamespace
The question is why you would quote that number if preferred stock isn't 100%
of the capital structure.

------
StreamBright
I am not sure if this will be their most lucrative investment of all times.

------
xandar11
There is a great analysis of Uber's failed business model by Hubert Horan [1]

[1] [http://horanaviation.com/Uber.html](http://horanaviation.com/Uber.html)

~~~
icecreameasier
so you mean the whole rider sharing is scam? lol

------
Improvotter
Can we please not post websites that require a paid subscription?

------
brucephillips
I wonder how this liquidation opportunity will be doled out to common stock
holders. Proportionally? FIFO?

------
QAPereo
Does anyone really think that Uber has enough runway, or could ever get
enough, to last until the necessary level of automation is developed? SoftBank
though, between this and their incredibly favorable, conditional loan to
Theranos really has an eye for distressed assets!

If someone does have a vision for a successful Uber, I’d love to hear it, not
to try and pick it apart, just to understand what’s happening.

~~~
valuearb
Uber should easily be profitable without driverless cars. Uber's cost to book
rides is pennies, its share of ride revenues is dollars. It's likely
profitable or close in north america now.

The naked capitalism analysis was childishly biased, completely done without
access to the necessary detail of their financials. Uber under Kalanick poured
massive amounts of money into accelerating international market expansion as
well as a huge number of side projects of questionable value.

Uber just exited the car leasing business. Yes, Kalanick had Uber leasing cars
to drivers, and losing big money doing it. How much has it poured into Uber
Eats? How much did it pour into driverless car tech when it will be easily
available whenever it becomes good enough for regulators to allow it? Besides
the cost, how big a distraction to running the actual business of offering car
sharing services were these hundred other endeavors?

The new CEO just has to trim out almost all of the side businesses, and put
the focus on finding more cost effective ways to grow Uber's car sharing
services world wide. Part of that is not pissing on your own brand by doing
sleazy things. In the end, if they remain the world wide leader in car sharing
service, installed on the most mobile devices, with the biggest pool of
drivers and customers, they'll be very profitable. and making the transition
to driverless cars will be easier for them than anyone else because they'll
have the biggest brand and customer base.

~~~
wpietri
Even if they pull all of that off, which I'm suspicious of, I don't see what
justifies the valuation.

The only way it made sense to me is if Uber achieved the same sort of
dominance that Google has in search or Facebook in social networking. But
Uber's market share is declining [1], and I just don't see a moat that allows
them to be able to extract monopoly/monopsony rents.

Just the other day a friend caught an Uber in a strange city. The driver, who
drove for multiple providers, encouraged her to use Lyft instead. And Lyft is
hardly the only competitor; starting a pseudo-taxi provider is just not hard.
So I think Uber won't be profitable for long even in the driverful car market.
And when driverless cars come along, the amount of possible well-funded
competitors (BMW, GM, Ford, Virgin, Enterprise, Google, etc, etc) means it's
unlikely to get better.

[1] [https://www.recode.net/2017/8/31/16227670/uber-lyft-
market-s...](https://www.recode.net/2017/8/31/16227670/uber-lyft-market-share-
deleteuber-decline-users)

~~~
Aspyre
Think about it. Ridesharing currently only accounts for approximately 0.1% of
all miles driven? And you don't see the upside for this market?

~~~
wpietri
Thanks, I have thought about it.

I see some upside, although probably less than you. Even if the market ends up
being large, though, that only matters if a) they have a large share of it,
and b) competition doesn't drive margins to approximately zero.

Facebook and Google are worth a zillion dollars because there is little
competitive pressure. GM's market cap is less than 1/10th of Google's because
they face stiff competition. Or compare with airlines. The top 3 airlines by
revenue bring in circa $120bn per year versus Google's $90bn. But the market
cap of those airlines is only $70bn combined versus $729bn for Google.

I think airlines are good comparison for the pseudo-taxi market. Barrier to
entry isn't huge, and lots of well funded people like to play in the space.
That means that consumer price competition is cutthroat; profit margins and
market caps thus stay low.

But Uber's in a worse position than an airline. A 777 or an A380 costs upwards
of $300 million, and you need more than one of them to be a plausible airline.
For pseudo-taxis, though, you just need some software (likely available via
white label), a few drivers in one city, and a bit of local marketing muscle.
It costs 3-4 orders of magnitude less to start a 1-city Uber competitor than a
regional airline.

And there are an awful lot of people who want a slice of the future
transportation pie, including every single car manufacturer (who can have
custom cars at cost), every car rental company (which combined have 2m cars
and 20k locations, a number of major tech companies (certainly Google,
possibly Apple and Amazon, surely others), and possibly anybody with a strong
brand (e.g., perhaps Virgin, GE, Ikea, LVMH).

So no, I don't think Uber's valuation was justified. Neither does Softbank,
obviously, or anybody else with the money to buy in. But I think it will go
lower still.

------
suff
Dear Uber, You don't need one thousand and five hundred developers to keep a
mobile app going.

------
arvinder
Paywall: [http://archive.is/4w0Jn](http://archive.is/4w0Jn)

