Ride-hailing company Uber Technologies Inc came to terms with bigger regional rival Grab to sell its Southeast Asian business operations, both firms said in a statement released today. The deal now puts pressure on Alphabet Inc’s Google and China’s Tencent Holdings Ltd who both support Indonesia’s Go-Jek.
The deal between Uber and Grab is Southeast Asia’s first big consolidation.
This region is now experiencing fierce competition in the ride-hailing industry after Japan’s SoftBank Group Corp’s Vision Fund invested over a billion dollar in Uber and Grab. As part of the deal, Uber will now hold 27.5 percent stake in the Singapore-based company and Dara Khosrowshahi, Uber’s CEO, is reportedly going to join Grab’s board.
“It will help us double down on our plans for growth as we invest heavily in our products and technology,” Khosrowshahi said in a statement.
This deal comes as a savior for Grab and its meal-delivery service as it will now merge with Uber’s Uber Eats and will give a better structure for the Singaporean company to take the upper hand on rivals Go-Jek.
“It was really a very independent decision by both companies,” Grab President Ming Maa said. He also praised SoftBank CEO Masayoshi Son who was “highly supportive”.
Uber is currently in a bad phase and are prepared for a potential initial public offering (IPO) scheduled to happen in 2019 after it lost over $4.5 billion last year. Moreover, they are facing strong competition in Asia and America as well while their business is being affected by regulatory restrictions in Europe.
Uber has invested over $700 million in Southeast Asia to operate their business. In China, it invested almost $2 billion before eventually giving up and ending their operations; defeated by local rival Didi.
Uber initially planned making more deals with their overseas rivals but changed policy and are no longer looking to consolidate their operations in a certain market by buying a minority stake in opposing companies.
“It is fair to ask whether consolidation is now the strategy of the day, given this is the third deal of its kind … The answer is no,” Khosrowshahi said in a note to employees.
“One of the potential dangers of our global strategy is that we take on too many battles across too many fronts and with too many competitors.”
Rumors are currently circulating saying that Uber is ready to level up the competition against Indian cab-hiring company Ola in what will be another fierce and costly showdown between the American company on a foreign land and a local competitor. Uber already boasts over 60 percent of the market in India according to estimates.
However, Rajeev Misra, Chief Executive of SoftBank’s Vision Fund, disagrees with the company’s current strategy and insists that Uber should focus more resources on profitable markets such as Latin America instead of investing great sums of money in competition-laden Asia.
The previous retreats from Uber, in China and Russia came under the direction of former CEO Travis Kalanick. New CEO Khosrowshahi, who was appointed in September, completed his first operations sale in the Grab consolidation.
Uber’s operations in the US, Australia, New Zealand and Latin America are the only markets where they own more than half the market share and generate profit or are on the way to do so. The ride-hailing company sold its southeast Asia operations to Grab because it could no longer compete in that market.