There’s a lot going on in the world of rideshare this week! Today, senior RSG contributor John Ince covers Uber’s potential stock sale, expansion in other countries, a lawsuit in South Africa that could affect pending lawsuits in the US, and more.
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Uber Backers Discuss Stock Sale to SoftBank, Others [Bloomberg]
Sum and Substance: Uber Technologies Inc. shareholders and its board, led by early backer Benchmark, have discussed selling some of their shares to SoftBank Group Corp. and other potential investors, people familiar with the matter said. The talks represent a major turning point for the company. It has amassed more than 500 investors who fought to own a piece of the world’s most-valuable startup. The fact that some of the earliest backers now want to reduce their stakes suggests the scandals and other troubles this year have taken a toll. The deal could include an injection of new money into the ride-hailing startup, the people said. They asked not to be identified discussing private deliberations. It’s unclear what valuation those shares would carry or how much may be sold. Any private share sale like this would need to be approved by San Francisco-based Uber’s board.
Uber’s former Chief Executive Officer Travis Kalanick, who remains on the board, didn’t learn about Benchmark’s effort to sell early shares until recently, two people familiar with the matter said. Kalanick has often opposed allowing early shareholders to sell their stakes, though the board has allowed occasional exceptions. Even though Benchmark led an investor revolt against Kalanick, at least three major shareholders said they were unaware of Benchmark’s effort to sell shares as of Friday morning, three people familiar with the matter said.
SoftBank, which recently launched a $93 billion technology fund, has no plans to invest in Uber, a person close to the Japanese company said. SoftBank has backed Uber’s primary rivals in India, Southeast Asia and China. Some of Uber’s investors would like to see the startup cut deals with overseas competitors — as it did with Didi Chuxing in China and Yandex NV in Russia. Grab, a leading ride-hailing startup in Asia, is raising as much as $2 billion from backers including SoftBank and Didi.
Further complicating the situation: One of Uber’s major late-stage investors, the Saudi Public Investment Fund, is also the largest backer of SoftBank’s new tech fund. Uber, last valued at $69 billion, has faced a string of scandals so far this year. It lost its CEO and heads of business, policy and communications, engineering, and product. Former U.S. Attorney General Eric Holder concluded an investigation into the company’s culture that recommended replacing Uber’s 14 values and relying on a new leader to reform the company’s culture. The search continues for a new CEO, chief financial officer, chief operating officer, general counsel, and independent board chair. Two smaller, longtime Uber investors have also started asking larger investment funds to purchase their shares, said two other people familiar with the matter. These backers are concerned that a leadership vacuum and growing competition from Lyft Inc. will dent Uber’s value.
My Take: It was just a matter of time. Sooner or later some of Uber’s investors were going to start looking for buyers for what was once the most coveted stock in Silicon Valley. But times have changed. If early Uber investors can unload their share now or even a portion of them, then Uber will have been a win – a huge win.
From the beginning, almost nobody thought Uber would grow into a $69 billion company. Whether it’s still worth $69 billion is the question of the hour. If any of these sales pan out, then we’ll get a better idea of what Uber is worth today. If it’s significantly less than $69 billion, investors like Benchmark might only walk away with hundreds of millions instead of billions.
Meanwhile, drivers, did you hear about Uber’s latest gesture to drivers in the 180 days of change? It’s Tip Tip Hooray … Uber doubled all tips made on Tuesday, July 16.
Uber accepts minority role, merges with Russian ride-sharing company [Ars Technica]
Sum and Substance: Uber is merging its business in Russia with Yandex, a dominant player in the Internet business in that nation and Eastern Europe. The move is an unusual one for Uber, a company that doesn’t have a reputation for backing down against competitors. Still, Uber has become embroiled in internal controversy and litigation back home, and that has perhaps sapped some of the company’s desire to compete in Russia and several other Eastern European markets.
The assets of the two companies will merge into a still-unnamed new company, with Yandex owning 59.3%, Uber owning 36.6%, and employees owning 4.1%, according to a press release sent out by Uber Thursday. The CEO of Yandex.Taxi, Yandex’s ride-sharing division, will become CEO of the combined business. In addition to combining forces in the Russian market, Yandex.Taxi and Uber will also join up in Kazakhstan, Azerbaijan, Armenia, Belarus, and Georgia.
The combined entity will operate in 127 cities across those six countries, according to a presentation to investors that Uber has made public. In addition to combining their assets, Uber will contribute $225 million to the combined entity while Yandex will contribute $100 million. “This combination greatly enhances Yandex’s ability to offer better-quality service to our riders and drivers, to quickly expand our services to new regions, and to build a sustainable business,” Yandex.Taxi CEO Tigran Khudaverdyan said in a statement.
My Take: This strikes me as a great move for Uber. Like the deal TK and Emil Michael negotiated with Didi in China, this deal gives Uber a substantial stake in the success of ridesharing in two huge markets. 37% is a hefty share of the equity. With Uber out of the game in both Russia and China now, these markets are less competitive and the survivors can raise prices without as severe an impact on ridership. While things may not look so good for Uber on its home turf, they’re definitely looking up for the company in the markets its vacated. How’s that for a winning strategy?
Uber drivers in South Africa are the latest to be recognized as employees [Quartz Media]
Sum and Substance: Despite the independence implied in the term “drivers-partners,” Uber drivers are in fact employees of the ride-hailing service, at least according to South African labor regulations. An independent local arbiter this week ruled in favor of a group of drivers who were effectively fired by Uber when it deactivated them from the app without reason.
One driver told local media that a whole year went by with no explanation from Uber South Africa, despite numerous attempts. A group of drivers who call themselves The Movement took the matter to the Commission for Conciliation, Mediation and Arbitration over this dismissal, as well safety concerns after continued harassment from meter-cab drivers. The commission argued while drivers can choose when to work, declining or accepting rides at will, because Uber’s app controls the means of their employment, this set “clear standards and performance requirements.”
Uber plans to challenge the decision in South Africa’s labor court, a higher body than the commission. It also said that the ruling only applies to the seven drivers who approached the CCMA. “There is a long legal challenge ahead before this ruling can be considered a win, or a loss for any side on this important issue,” Uber South Africa said in an emailed statement.
Around the world Uber’s global expansion has collided with local labor laws. The ride-hailing service says its drivers are partners or who use the app to generate business as any small business would, but more and more countries are finding that drivers should have the same rights as any other employees. Invariably, Uber’s “driver-partner” model has meant the $68-billion tech startup has raked it in, with little obligation to the people who make it work. In South Africa, working for Uber has meant low wages for the many drivers subcontracted to vehicle owners, worsened by violence and intimidation from meter-cab competitors. That is the gray area Uber drivers find themselves in, and not only in South Africa.
In the United Kingdom last year, a court ruled that Uber may not classify its driver-partners as self-employed, which means they were entitled to the national living wage. In Switzerland this year, an insurance agency also ruled that Uber drivers are in fact employees, and not freelance contractors. In the US, drivers’ status has varied from state to state. The South African drivers who are part of “the movement” plan to continue their fight, too.
My Take: This ruling only amounts to a trickle in terms of immediate impact. Only a handful of drivers are affected by the ruling, and you can bet your bottom dollar Uber is going to appeal. But judges pay attention to what other judges rule. With search technology so advanced, it only takes a judge in California presiding over a similar case to read the reasoning of this opinion.
In the final analysis, that’s what matters: reason. I see the reasons Uber doesn’t want its drivers classified as employees – billions of reasons – each shaped like a dollar bill. But since Uber’s reasons did not hold sway in South Africa, I can’t see how Uber is going to hold back the waters forever. The eventual outcome to this an ongoing, multi-front legal battle that won’t be a complete loss for Uber. There will be compromise solutions coming, where drivers maintain some independence and Uber doesn’t have to be out of pocket all the expenses that traditional employee usually get. It will come down to negotiations – that’s what business is all about.
Uber, Lyft take down not just cab drivers, but also lenders [CNBC.com]
Sum and Substance: Three New York-based credit unions that specialized in loaning money against taxi cab medallions have been placed into conservatorship. … Ride-hailing apps such as Uber and Lyft have been so disruptive to New York City’s taxi industry, they are causing lenders to fail.
Three New York-based credit unions that specialized in loaning money against taxi cab medallions, the hard-to-get licenses that allow the city’s traditional cab fleet to operate, have been placed into conservatorship as the value of those medallions has plummeted. Just three years ago, cab owners and investors were paying as much as $1.3 million for a medallion. Now they are worth less than half that, and some medallion owners owe more on their loans than the medallions are worth. “You’ve got borrowers who are under water. This is just like the subprime loan crisis,” said Keith Leggett, a credit union analyst and former senior economist at the American Bankers Association.
LOMTO Federal Credit Union, which was founded by taxi drivers in 1936 for mutual assistance, was placed into conservatorship by the National Credit Union Administration on June 26 “because of unsafe and unsound practices.” New York City has the nation’s largest taxi industry, with more than 13,000 medallions. Marcelino Hervias bought his medallion in 1990 for about $120,000 and thought its value would hit $2 million by the time he was ready to retire Instead, the 58-year-old said he owes $541,000 and is driving 12 to 16 hours a day to make ends meet. While some medallions are held by large owners with fleets, owning a single medallion was long seen as a ticket to the middle class for immigrants like Hervias, who is from Peru. Many of them now owe more on their medallion loans than they originally paid for the medallions because they used their equity in the medallion for a home, a child’s education or other expenses. Hervias said he borrowed against his medallion to pay for medical care for his mother, a new car and a visit to his homeland. “Every time we want to go on vacation or do something, where do we go? To the equity of the medallion,” he said.
… According to a Morgan Stanley report, there were 11.1 million yellow cab trips in the city in April 2016, compared with 4.7 million Uber trips and 750,000 Lyft trips. The 11.1 million taxi rides were 9 percent fewer than the April 2015 number. Some observers believe that the yellow cab’s market share will continue to shrink and that the value of a medallion won’t recover. “This is a commodity that has been fundamentally disrupted,” said Leggett, who has written about medallion loans in his online newsletter Credit Union Watch. “I don’t see the value of the medallions getting close to what they were.”
My Take: For those who read last week’s story, Where Does Uber’s Value Come From?, we might dub this story, Where did the Medallion Value go? The answer is both simple and complex. Market value of taxi medallions has been plunging for years, and now the lenders who financed the purchase of those medallions are taking a hit too.
One of my childhood chums was in this business. It’s a risky business even without the Uber tsunami. One time I was visiting my old friend at his office in a nondescript storefront on the Upper West Side of New York City and he told me that two days earlier he’d called the FBI into his office, who apprehended a Russian scammer at gunpoint a few feet from where I was sitting. This article gives the human side to the loss felt by thousands who have been chopped up by the Uber/Lyft meat grinder. Many will say they got what they deserved, but that doesn’t diminish the magnitude of the tragedy that has befallen them.
Readers, what do you think of this week’s round up? Any predictions for Uber lawsuits in other countries and how they could affect lawsuits in the US?
-John @ RSG
