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Wednesday, 27 March 2019

Uber, Careem sign agreement to proceed with acquisition

M&A WATCH- Uber is acquiring Careem in a USD 3.1 bn transaction, making Careem the MENA region’s most valuable ‘unicorn’ ever: Ride-hailing companies Uber and Careem have reached an agreement that will see Uber acquire its regional rival for USD 3.1 bn, a joint statement said (pdf). The transaction is expected to close in 1Q2020, subject to regulatory approvals. If it goes through, the acquisition would consist of USD 1.7 bn of convertible notes and USD 1.4 bn in cash. Uber is poised to acquire Careem’s core mobility, delivery (Careem Now) and payment (Careem Pay) businesses in all countries where Careem operates.

So, what does the ride-sharing landscape look like post-transaction? Uber and Careem will operate as separate brands (for now) even as Careem becomes a wholly-owned subsidiary of Uber. The Dubai-based firm will continue to be led by co-founder and CEO Mudassir Sheikha. Careem will report to its own board, which will consist of three Uber representatives and two from Careem.

You can check out the transaction fact sheet here (pdf).

What Uber and Careem’s leadership had to say: Careem’s Sheikha sees the acquisition as a “milestone moment for us and the region [that] will serve as a catalyst for the region’s technology ecosystem.” The two companies joining forces will also help Uber “expand the strength” of its platform with Careem’s local know-how, Uber CEO Dara Khosrowshahi said.

Read Khosrowshahi’s email to Uber staff here (pdf).

The story is all the business press could talk about yesterday: Reuters, Bloomberg, the Wall Street Journal, the Financial Times (paywall), and the New York Times had the story, as does every tech-focused outlet under the sun. “For Uber, the prize is the proof that it still can secure a dominant position in an emerging market following a series of [transactions] that have seen it retreat to the role of junior partner,” Bloomberg highlighted.

For Uber, the move is a shot in the arm ahead of its upcoming IPO, Reuters Breakingviews notes. It also comes as Uber’s US rival Lyft looks set to price its IPO shares above guidance, the WSJ adds.

The Egyptian Competition Authority (ECA) is not happy with the merger, saying in a statement that the combination of the two businesses “may lead to a significant impediment on effective competition in the markets” by restricting choice for riders and drivers alike. The regulator will undertake an investigation once it has received formal confirmation from the companies and is due to announce its decision within 60 working days.

The ECA previously threatened both companies with fines of up to EGP 500 mn apiece if they went through with a merger.

Saudi companies are cashing in: Kingdom Holding Company said in a disclosure to Tadawul yesterday that it completed the sale of SR 1.25 bn-worth of Careem shares to Uber in the transaction. The Tadawul climbed yesterday as Careem shareholder Al Tayyar Group’s shares rose 10% following the agreement, Reuters reports.

So, how did Careem do it? The Dubai-based company built a moat around its operations that Uber had to pay to penetrate, Business Insider argues, citing a recent interview with Sheikha, who pointed to the service’s deep on-the-ground knowledge, including understanding that cash is king and having mapped “every building, every villa, every shopping mall” because of local limitations of Google Maps.

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