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Sunday, 21 April 2019

Uber-Careem takeover could lose USD 470 mn, Egypt watchdog a major concern

Uber will pay 15% less for Careem if the two fail to get regulatory approval in jurisdictions including Egypt. Uber could get a USD 470 mn break on the USD 3.1 bn price tag it put on its acquisition of Careem if the transaction fails to obtain regulatory approvals in certain markets, according Uber’s prospectus for its listing on the New York Stock Exchange. Careem agreed that the maximum price break of 15% will be dependent on the value “ascribed to Careem’s operations in such markets.” A further 10% will be withheld temporarily as assurance against potential indemnification claims. Careem shareholders will receive 75% of the total sale price when agreement concludes around January 2020. This will include the USD 1.4 bn cash portion of the transaction.

Egypt presents a challenge on regulatory approval. The Egyptian Competition Authority (ECA) has been outwardly vocal against the move. The regulator voiced concerns that the agreement would reduce market competition, and announced that it would be investigating the acquisition upon which a decision would be made within 60 working days. An internet poll was launched shortly after to assess its effects on the ground. Prior to the agreement the ECA threatened both companies with fines of up to EGP 500 mn apiece if they went through with the merger.

Does the ECA really have the power to block the transaction? Not really, according to an opinion piece written for us earlier this month by Zulficar & Partners founding partner Firas El Samad,

Other Careem-related things items in Uber’s prospectus include:

  • Careem will exit Sudan, where it began operating in September last year.
  • Uber and Careem share consumer demand and driver availability despite keeping each of their platforms independent and operating as separate brands. MENA Bytes suggests that this will lead to subsidies and discounts (i.e. promo codes, driver incentives) being reduced.
  • Uber parent would also take in certain “general and administrative functions,” but Careem’s engineering, HR and operations departments will remain independent.

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