Uber in trouble

Reports note that SoftBank is hoping to buy Uber’s existing shareholders at a valuation of $48 billion. This is a 30 per cent cut from the ride-hailing group’s previous fundraising. The company has been valued at $69 billion valuation.

Background

Uber, an American technology company, that offers ride sharing services, is also one of the most successful companies in the world.

However, a series of controversies that have plagued the company in 2017. This includes claims by former employees about the working conditions within the company. A blog by a former employee Susan Fowler about the sexual harassment rampant at Uber went viral. This led to Uber firing more than 20 members of its staff and taking action against others following a review of more than 200 HR complaints that included harassment and bullying.

According to media reports, its value has dropped from $60 billion at the beginning of this year to around $50 billion by April 2017.

Following the many controversies that plagued Uber, Kalanick was forced to resign from his position. The company then made an offer to Dara Khosrowshahi to become the company’s next Chief Executive Officer. Prior to that, Khosrowshahi was the CEO of Expedia, a travel company.

SoftBank Group Corp is a Japanese multinational conglomerate corporation established on September 3, 1981, and headquartered in Tokyo, Japan. SoftBank Corp has invested in ride sharing app like Grab in the past.

Analysis

According to confirmed media reports, ride-sharing technology company Uber, concealed a hack that affected 57 million customers and drivers. The hack took place in 2016 and then-CEO Travis Kalanick reportedly was privy to the fact. The paid hackers $100,000 to keep the massive breach a secret.

Khosrowshahi said, “I recently learned that in late 2016 we became aware that two individuals outside the company had inappropriately accessed user data stored on a third-party cloud-based service that we use. The incident did not breach our corporate systems or infrastructure. None of this should have happened, and I will not make excuses for it. While I can’t erase the past, I can commit on behalf of every Uber employee that we will learn from our mistakes. We are changing the way we do business, putting integrity at the core of every decision we make and working hard to earn the trust of our customers.”

Reports note that SoftBank is hoping to buy Uber’s existing shareholders at a valuation of $48 billion. This is a 30 per cent cut from the ride-hailing group’s previous fundraising. The company has been valued at $69 billion valuation. The Japanese conglomerate is expected to formally inform shareholders of its offer on Tuesday.

“SoftBank’s expectation that it can get shareholders to part with their shares at about $50 billion builds in all the negative news,” says Kirk Boodry, an analyst at New Street Research. “All of this over the past year has contributed to the downside.”

“By no means is our investment decided,” SoftBank director Rajeev Misra declared earlier this month. “We are interested in Uber but the final deal will depend on the tender price and a minimum percentage shareholding for SoftBank.”

Rohit Kulkarni, analyst at SharesPost, said a discount of between 10 per cent and 30 per cent was typical for start-up tender offers, which provide an outlet for early investors and employees to cash in their shareholdings. “From a seller’s standpoint, the value proposition [for the SoftBank tender offer] is that they are able to liquidate their holdings,” he said, noting that Uber’s public offering is not expected until 2019 at the earliest. “If employees do not sell in this tender offer, they are looking at another two- to three-year holding period.”

SoftBank, led by Japanese billionaire Masayoshi Son, raised $93 billion this year, the largest technology investment fund ever. An Uber spokesman declined to comment.

Assessment

Our assessment is that the current deal indicates how mismanagement within a company, even one as successful as Uber, can negatively affect its worth. SoftBank’s bid is drastically lower than Uber’s valuation as the latter continues to battle multiple public scandals.