SoftBank’s Interest in Uber Indicates Strategic Consolidations

#DigitalErra
Jul 27, 2017 · 3 min read

A proposed investment by SoftBank Group Corp.in cab-hailing service Uber Technologies Inc. may put rival Ola (ANI Technologies Ltd) in an awkward spot as its largest shareholder and only strategic investor would then own a large stake in its main competitor.

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According to the Wall Street Journal, SoftBank has approached Uber about taking a multibillion-dollar stake in the company. The talks are said to be preliminary, and nothing is expected to happen until Uber names a chief executive officer.

“SoftBank missed the chance to invest in Uber before it became the leading ride-sharing platform in the U.S.,” said Masahiko Ishino, an analyst at Tokai Tokyo Securities. “Other regional ride-sharing companies still need capital to get up to speed.”

Well, if a deal were to be reached, it would add to a convoluted web of investments in the ride-hailing industry, where competitors have become strange bedfellows through investors who have placed bets on multiple companies.

Uber, which has had a hard time overtaking its competitors overseas, ended a subsidy war in Moscow earlier this month. Also, the ride-hailing giant pulled back in its global expansion efforts by striking a deal with Yandex, the “Google of Russia.” Yandex and Uber agreed to merge their ride-sharing businesses in Russia and five neighboring markets with Yandex as leading partner.

Consolidation in Sight with Uber

A deal with SoftBank could, as the WSJ notes, merge Uber’s operations with other ride-hailing companies and strengthen SoftBank’s foothold in the Asian market.

SoftBank holds a key position in Ola, the dominant ride-hailing company in the country, which is locked in a market share battle with Uber.

Live Mint reported that if SoftBank’s proposed investment in Uber materialises, the Japanese telecoms and Internet conglomerate, which launched a $100 billion fund for tech investments in May, may try to arrange a merger between Ola and Uber.

Both Ola and Uber India are spending heavily on incentives and discounts to snatch and retain the market share.In the year ended 31 March 2016, losses at Ola nearly tripled to an unsustainable level of Rs2,313.7 crore.

  • Uber and DidiChuxing, Grab

SoftBank has also invested in DidiChuxing, which until last year was deadlocked with Uber for supremacy in China’s transportation market. On Sunday, SoftBankinvested in Grab, a Singaporean ride-hailing company, in a $2.5 billion round that DidiChuxing also participated in.

Both Didi and Grab are part of a global partnership that includes Uber’s main American rival, Lyft. Grab has also been taking other cues from Didi’s home market, including working to build a broader mobile payment system. While Didi and Uber are now partners in China, this investment makes it clear that elsewhere, Didi still views Uber as a competitor.

Uber has been one of the companies that drove the cutthroat competition in the ride-hailing industry, by spending heavily and slashing costs for passengers. But that has begun to change in recent months as the company has dealt with turmoil in its executive suite.

Sreedhar Prasad, partner, Internet business and start-ups, KPMG, quoted, “Consolidation as a strategic initiative is a Mantra in Internet commerce across the world and when there are common investors, these initiatives could become relatively easier. Cab hailing is one of the key areas within Internet commerce, where there is cut throat competition, and we have seen a lot of interest and action globally by investors.”

Previously, SoftBank’s Son had emerged as the primary financier behind the anti-Uber alliance. But now, SoftBank’s interest in Uber indicates it may be hedging its bets amid intense competition in the ride-hailing industry. Many companies have been forced to raise billions of dollars in private capital to fund expansion of their operations, which often involves subsidizing trips for riders in new markets. That intense spending has put strain on a number of ride-hailing start-ups.

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