Uber Backs Out Of Southeast Asia By Selling Operations To Grab: Are Global Taxi Wars Heading For A Truce?2 min read

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The Deal

Uber Technologies Inc. has finally agreed to sell its Southeast Asian operations to regional-rival Grab. As a part of the agreement, Garb will take over all of Uber’s operations in southeast Asia, including the food delivery service UberEats. Uber on the other hand will get a 27.5% stake in the Singapore-based company and Uber’s CEO, Dara Khosrowshahi will get the opportunity to join Grab’s board.

The stake worth $1.6 billion — is a strong return considering Uber had invested just around $700 million in its Southeast Asia business over the past five years.

Third major deal in the last 2 years

In 2016, Uber China merged its operations with dominant rival Didi Chuxing which commanded a market share of more than 70% in China. Uber China had lost more than $1billion over the past two years trying to gain traction by offering subsidies to drivers as well as the riders, which was completely unsustainable. This fierce rivalry ended with Uber getting an 18% share in the merged entity.

A similar merger was seen between Uber and Yandex.Taxi in Russia. Uber invested about $225 million and holds around 36.6% share. On the other hand, Yandex invested $100 million and commands a 59.3% ownership in the merged entity which has its footprints in Russia, Azerbaijan, Armenia, Kazakhstan, Belarus, and Georgia.

Role of Softbank

Softbank, which already has billions invested in many ride-sharing platforms in Asia blurred the lines between Uber’s allies and competitors after it acquired a 15% stake in the company. Softbank already has investments in Ola, Didi Chuxing and Grab all of which direct rivals to Uber. Softbank’s investment in Uber can be seen as well planned hedging strategy, as there is nothing wrong with investing in competing companies till the time there is no information sharing from the part of the investor. This often leads to a consolidation or merger as no investor would want a portfolio company to lose money in competing with another portfolio company.

The road ahead: Uber eyes an IPO

Uber went global too quickly for a Silicon Valley startup. Backed by immense support from investors it attacked multiple regions and countries simultaneously, failing to realize the importance of local know-how and regulators. Expanding into new-emerging markets requires a lot of money. In Uber’s case the contribution from developed markets was getting invested into the new markets. Simply put, Uber currently isn’t profitable as it is spending a lot trying to establish itself in emerging markets like India where it faces stiff competition from local players. Uber now seems to be setting the stage for its much awaited IPO in 2019 adopting a ‘contained strategy’ where it is backing off from certain regions and betting big on partnerships like the ones in Russia. Also, the recent investment from Softbank will give Uber a push in markets such as UK where it is facing licensing issues, and in India where Ola is giving it stiff competition.

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