
SoftBank said to be trying to buy a big stake in Uber at a discount - anigbrowl
https://www.bloomberg.com/news/articles/2017-11-28/softbank-is-said-to-seek-uber-shares-at-48-billion-valuation
======
simonrobb
"...at a price that would value the ride-hailing company at 30 percent less
than its most recent $69 billion valuation".

This is not true, it has no effect on the current valuation at all. Softbank
are looking to buy shares at this lower valuation since they are a different
class of share to what they would get otherwise; these are common stock
(employees will be a major source of stock for the sale) and therefore don't
have the same benefits of preferred stock, of course they expect a better
price. Where they are receiving preferred shares (the $1B investment) they are
using the $69B valuation from Uber's last round (presumably this $1B is being
added as a late-comer to that round).

I can't believe that a Bloomberg reporter would get this wrong, so this sounds
a lot like jumping on the media band wagon. Suggesting Uber has lost 30% of
its value is blatantly false.

Edit: It's fair to say there might be some impact on the notional valuation
between rounds, which is hazy at the best of times. However it's not a 30%
cut.

~~~
aaavl2821
If they are buying a combination of preferred at a $69B valuation and common
at a 30% lower valuation, it is certainly possible that the overall valuation
is a discount to the $69B. Hard to know without seeing detailed terms

I'm sure the liquidation preference (presumably 1x?) is worth something, but
is it worth a 5-10-20-30% discount? At Uber's current valuation, the preferred
would convert anyway so the liquidation preference would not be relevant

Edit: saw that the total investment is slated to be $10B, with $1B invested at
the $69B valuation and the rest presumably in common shares at a 30% discount.
It could be true that this does not represent a decrease in valuation, but
there is reason to believe that the overall valuation is a step down. Devil in
the details

~~~
simonrobb
I may be falling for a nice perception play from Uber, but I took this more-
or-less at face value: Softbank is buying up a lot of valuable property at the
moment, and even though Uber wouldn't be raising again for another 6-12
months, they wanted a piece. This is the mechanism they managed to negotiate.

Early shareholders gain liquidity, Softbank gets cheap stock, and the market
gets some bullish signals on Uber in the form of Softbank's backing. From the
outside it looks like a pretty good deal. Of course there might be internal
panic and I've got it all wrong, but I see some big wins for both parties.

~~~
ethbro
I'm curious about whether a sale like this included full due diligence or if
the extra-ordinary nature meant some other standard of accounting was used.

If SoftBank went in with eyes open, this seems business as usual. If they're
rushing after the cool kid on the block, then this starts to sound like
Theranos 2.0.

~~~
linkregister
SoftBank has been equivocating for months over this deal. It has been in the
works long before the current Uber CEO arrived.

They are structuring a deal that is advantageous to themselves, exploiting
Benchmark’s desire for an exit so they can pay its investors their returns.

SoftBank is getting extremely cheap debt at the moment, so it makes sense to
take advantage of shareholder turmoil to get valuable companies at a discount.
With this purchase, SoftBank will have a hand in every significant ride
sharing other than Lyft.

~~~
simonrobb
_> exploiting Benchmark’s desire for an exit_

Does that imply that they'll be buying Benchmark's stock, rather than
employees'?

 _> SoftBank is getting extremely cheap debt at the moment_

That sounds like some interesting background to the deal, please expand if you
have more detail!

~~~
linkregister
SoftBank raised $93B in equity from investors. It also issued about $5B in
bonds in July, as well as a large amount of loans from Japanese and East Asian
banks (over $25B). The rates are extremely favorable despite the high risk
associated with SoftBank's investments.

I'm bullish on SoftBank, but it's indisputable that it's gotten a hell of a
deal. The upside for the banks is they get their principal + interest back.
The downside for the banks is that they lent the cash at low-risk rates for
high-risk assets.

------
Fricken
Softbank has large stakes in Didi, they led a $2,000,000,000 round in
Southeast asian rideshare Grab, and a $1,1,000,000 in Indian rideshare company
Ola. That's all the big global rideshare companies, Masayoshi Son is in all of
them.

[https://www.crunchbase.com/organization/softbank/investments...](https://www.crunchbase.com/organization/softbank/investments/investments_list)

In the developing world, you've got cities like Karachi, Pakistan, whose
population grew 80% between 2000 and 2010, and now sits at 21 million people.
There are dozens of other cities experiencing ridiculous growth rates like
that.

Very few people own motor vehicles, Regional Governments have no chance of
being able provide adequate transportation infrastructure. In Indonesia I once
counted 21 people in a pick-up truck (16 in the back, 5 in the cab). There's a
hodge-podge of small private transportation providers that move people around
in these kinds of places, but the Big rideshare companies will sweep them
aside as handily as traditional taxis were in the west.

Big Rideshare provides both sophisticated logistical oversight, and secure,
accountable brokerage that little guys can't match. Rideshare's penetration
into developing world is just getting started, and Softbank has it's fingers
in every pie.

------
BukhariH
Just so we are clear:

\- Softbank will invest $1B in Uber at a $69B valuation - this is the same as
their old valuation. This sale will create new shares and therefore dilution.

\- However, the offer is contingent on Softbank being able to buy a
significant number of pre-existing shares at a $48B valuation from early
investors - no dilution here.

\- If they don't get enough investors to agree to sell at $49B then the whole
deal is off the table.

~~~
dopamean
What is the justification for saying that new shares are worth more than
existing ones?

~~~
teemwerk
I don't want to spam this article all over, but Matt Levine, also at
Bloomberg, I felt had a much better overview of that question almost verbatim,
plus imo he's an excellent writer.

[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)

~~~
dopamean
This was a great read. Thanks for sharing it. Levine is a super talented
writer.

------
rtpg
> “It happened in China, it happened in Russia. In India and Southeast Asia,
> rationalizing the competitive environment makes sense,” says Boodry. “Going
> forward ride sharing in an environment without a lot of competitive pressure
> looks to be a pretty good business.”

This is one of those quotes that really make me wonder how markets are ever
able to push prices down. I get that people are all trying to make money but
almost everyone in the decision making process except for the end consumer
seems to be in the "competition is bad" camp.

I wonder when the anti-trust cases against Uber (especially for dumping) will
start rolling in.

~~~
lmm
> This is one of those quotes that really make me wonder how markets are ever
> able to push prices down. I get that people are all trying to make money but
> almost everyone in the decision making process except for the end consumer
> seems to be in the "competition is bad" camp.

Free markets are fragile things and it takes a lot of work to keep them
competitive. But in fairness this is a relatively new product category.

> I wonder when the anti-trust cases against Uber (especially for dumping)
> will start rolling in.

Sometimes I wonder whether all VC-funded startups are basically dumping.

------
snacktaster
good riddance to these companies.

Uber and Lyft have caused NYC traffic to slow by 12% since 2015 [0]. These
_private_ companies have flooded the public roadways and overwhelmed the
infrastructure without any obligation to meter themselves or pay for their
fair share of access. I finally understand what the NYC Taxi Commission
existed for.

[0] [https://www.timeout.com/newyork/blog/traffic-is-
moving-12-pe...](https://www.timeout.com/newyork/blog/traffic-is-
moving-12-percent-slower-through-manhattan-thanks-to-ride-sharing-apps-030717)

~~~
2chen
First of all, you're missing the point of the article. Softbank is increasing
its stake in Uber, which can only be a good thing, even if it's a markdown
from its last preferred round.

Second of all, you bandy around _private_ like it's a bad thing. The reason
why these companies are successful is because they pioneered a much more
better solution than the alternatives. Take, for example the _public_ service
Access-a-Ride [1]. This is the kind of "quality" you get without competition
and innovation.

[1]: [https://longreads.com/2017/09/01/on-nycs-paratransit-
fightin...](https://longreads.com/2017/09/01/on-nycs-paratransit-fighting-for-
safety-respect-and-human-dignity/)

------
indubitable
Interesting! As an aside Softbank are also the company that recently bought
Boston Dynamics and the less well known Schaft. They also recently acquired
ARM Holdings - a major semiconductor company. After a meeting with the
president-elect late last year, they announced a plan to invest $50 billion in
the US aimed at creating 50,000 new jobs.

It's interesting to see people betting on such a very precise future that is
seeming increasingly likely.

------
tomasien
Buying common stock and a different price from preferred is not a discount.
Come on, this is just annoying at this point.

------
msoad
Bigger news is that $1b investment is at previous valuation. No growth in
valuation since last round.

------
Grue3
Interesting that a Japanese company is trying to buy Uber, when Uber doesn't
even work in Japan (well, you can call Uber Black in Tokyo, but it seems that
the usual ridesharing can't work under Japanese laws). The licensed taxis are
numerous and easily recognizable, unfortunately the fares are appalingly high.

------
thebiglebrewski
Isn't this valuation...way lower than their like, "real" valuation? I don't
get it.

~~~
mark_element
This should let early employees and any investors who want to get out to get
liquid. Otherwise they might have trouble unloading their equity without some
other mechanism being made available by Uber's board.

------
cavisne
Do private companies provide enough info to know how many millionaires this
would create?

~~~
econner
No, but maybe we can guess?

Uber had 170 employees in Jan 2013 and were valued at $3.5 billion in Aug
2013. Their goal was to 4x the number of employees by end of 2013. They then
had 1500 employees in Oct 2014 at a valuation of around $17 billion.

Let's say equity grants ranged in value from $50,000 to $200,000 (these are
probably good 25th and 75th percentiles) in stock options.

The secondary is at $48 billion, which is an increase of 14x over the 2013
valuation and 3x over the 2014 valuation. Assume Uber had 600 employees at the
time of the $3.5bn valuation.

The 2013 equity grants are now worth $700,000 to $2,800,000 (conservatively).

So I'd say 600-700 millionaires from that alone. Probably a whole bunch more
if you count later larger grants times the smaller multiples.

So maybe 1000 millionaires?

Also, employees are only able to sell 50% of vested I believe in this round
and will have to pay tax up to 40%. So that reduces the number a bit.

~~~
eric-hu
40%?

Is that tax amount typical?

~~~
econner
If you're doing short term cap gains then you have to report as regular
income. If you have over $526,443 in taxable income in California then your
total income tax rate is actually 51.9% (39.6% federal, 12.3% state).

~~~
yellow_postit
Is there additional time pressure based on the possible tax reform being
pushed through Congress? As in does this deal become much worse/better for
employees with the new code?

~~~
econner
Hard to tell. The new tax plan is supposed to get rid of AMT which could be
good for exercising options, but it also might get rid of the SALT deduction
which would be pretty bad for CA taxpayers. Hard to say for sure.

------
fjni
So $1bn of newly issued shares and presumably liquidation preference at $69bn
valuation and some amount of existing shares at a 30% discount presumably due
to lower preference?

------
ForFreedom
Softbank's acquisition at this rate would own most valuable startups making it
a valuable company than a bank in the coming 10 years or so.

------
samstave
ELI5 the followin when talking about a company such as Uber:

So 'UBER' i valued at 48B

Why? Whats the breakdown?

How many drivers d they have - and how valuable is the tech which enables said
drivers to work, pay the drivers, track their trips, etc...

What % of value is from the extracted data/ vs / the inputs?

Whats the avg ride fare/per region/city/etc

How can anyone invest in a company where the above and thousand of other,
inputs are opaque to the investor?

Given that, with the wildly public controversies happening around the company,
how could this be considered a safe bet?

They have tech and legal and other issues etc...

so who is really looking at them as solid and why? And if you tell me who,
then I shall auto-assume that those looking at them as solid are shady.

CMV.

~~~
indubitable
I think a major part of the value in Uber is going to be in future self
driving tech. They already have the infrastructure, brand name, and so on in
place to migrate rapidly to self driving taxis on an international level. Self
driving taxis will, almost certainly, end up a monopolized industry due to the
fact that the quality of service will increase in proportion to scale, and
prices will inversely scale there. The biggest player is going to be able to
offer the highest quality rides for the lowest costs.

Softbank's recent acquisitions also hint towards a possibility of vertical
integration which would take the above issues and magnify them that much more.

