Uber will spend $ 3.1 billion to acquire its rival Careem, giving it a dominant position in a competitive region, in anticipation of a much anticipated public call for savings.
In a press release, Uber said it would pay $ 1.4 billion in cash and $ 1.7 billion in convertible notes as part of a transaction giving it full ownership of Careem.
The long-awaited agreement puts an end to more than nine months of negotiations between the two companies and gives Uber a well-deserved victory after a series of divestments abroad.
The notes will be convertible into Uber shares at a price equal to 55 USD, Uber said, marking an increase of about 13% over the Uber share price during its latest round of financing, led by SoftBank Group Corp more than a year ago.
The acquisition makes Careem a 100% Uber subsidiary and will preserve the Careem brand and application, at least in the beginning. Careem co-founders Mudassir Sheikha, Magnus Olsson and Abdulla Elyas will remain with Careem after the acquisition, the two companies announced.
However, the Careem Board will be reorganized: three seats will be allocated to Uber representatives and two to Careem. Sheikha, who is the CEO of Careem, and Olsson will sit on the board. A spokesman for Uber declined to say who Uber would be appointing to the board.
The $ 3.1 billion cash and stock purchase buys all outside investors at Careem, companies announced, and Careem's shares will be converted into Uber shares. Careem had raised less than $ 800 million from investors and had raised $ 2 billion in October. Among its donors are German automaker Daimler AG, Chinese company Didi Chuxing, Japanese Internet company Rakuten Inc. and Saudi investor Kingdom Holding Company.
The deal is expected to close in the first quarter of 2020, the companies said, which means it will not be reflected in Uber's first quarterly earnings releases as a public company, although It is probably disclosed in a public record of IPO. Uber will launch its IPO next month and should receive a valuation of at least $ 100 billion.
The agreement is subject to the approval of the supervisory authorities, including by the antitrust authorities of the countries in which Careem operates, which could prevent the transaction from progressing or require companies to change the terms.
An important moment for Uber
The agreement is particularly important for Uber, whose ability to be a competitive global player has been called into question after selling its business in China, Russia and Southeast Asia to local rivals after suffering heavy losses .
Dara Khosrowshahi, CEO of Uber, said in a statement that the agreement with Careem "was an important moment for Uber".
Uber was eager to reach an agreement before the company began its roadshow, meeting with public market investors before listing the shares on the New York Stock Exchange. The agreement allows Uber to claim a dominant position in a growing region because of its popularity outside the United States.
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Uber operates in more than 70 countries, but faces strong rivals in Latin America and India and strict regulations in Europe.
Business talks have been going on for at least the past summer, sources told Reuters, though they did not get serious until the end of the year. Companies had been fighting for years in a driver competition that demanded discounts and subsidies and pushed prices artificially down.
Over the past year, Careem has rapidly expanded its business, adding a delivery service and almost doubling its value, forcing Uber to increase the price of its offering.
By the end of last year, Careem had attracted investor interest in another round of financing when Uber made an aggressive decision to buy the company, sources said.
The first unicorn release in the Middle East
Careem, founded in 2012, has a larger presence than Uber in the Middle East, North Africa, Pakistan and Turkey, operating in 98 cities nationwide, compared with around 23 sites.
"A Uber-Careem merger underscores the huge potential of the Middle East's auto industry," said Sam Blatteis, CEO of MENA Catalysts, a Middle East policy consulting and research firm.
The merger also follows the acquisition of Amazon.com Inc by the Dubai-based online trading company Souq Group Ltd in 2017, according to a document filed by the US Securities and Exchange Commission, highlighting the emerging technology scene in the Middle East.
"This is the first" unicorn "release in the Middle East, and it is representative of what will come out of the Middle East," said David Chao, co-founder and general partner of venture capital firm DCM and investor from Careem, referring to ups valued at $ 1 billion or more.
Uber said its revenues last year rose to $ 11.3 billion, while its gross bookings of workshops rose to $ 50 billion. But the company lost $ 3.3 billion, excluding gains from the sale of its overseas business units in Russia and Southeast Asia.
Careem does not disclose its income.