“There are two camps within Uber right now. One is in favor of the merger, while the other wants to go on independent,” says an executive at Uber who asked not to be identified as he is not allowed to talk to the press.
Those who want to stay independent argue that Uber plans to go for an initial public offering (IPO) sometime in 2019, and when it does, it will need to be present in one of the biggest markets in the world: India. Letting it go may dent its valuation and harm the IPO.
Entering in the mature markets
Uber CEO Dara Khosrowshahi, during a recent trip to India, insisted that India would remain a part of its “core markets”, and that the company would essentially leverage the profits it makes in its other, more mature markets like the United States and Europe to invest into its Indian business.
In an interview with news channel ET Now, Khosrowshahi said, “I think we’re going to be quite aggressive in India as far as investment goes. One of the great structural advantages that we have at Uber is that we have many profit pools. Those profit pools in the mature markets in the US and Europe allow us to actually lean into some of the developing markets.”
But then, a merger also presents a cash-cutting opportunity ahead of the IPO, especially markets like India which are considered to be high-burn. Ditto for Southeast Asia. Prior to the merger, Uber was believed to have invested $700 million in its South Asia business.
But that has prompted a tactical shift within the company. It is done playing the second fiddle. In any merger between the two businesses, Ola and Uber, (and any future mergers), Uber is said to be wanting majority ownership, and not the other way round. Uber sources say that this proposal may not be acceptable to Ola, and this is where a common investor like Softbank could play a key role.
This formula is in contrast to the three previous global deals, including Didi Kuaidi (China), Yandex (Russia) and Grab (South East Asia), where Uber merged its respective entities in those countries with the local rival.
“If there is a merger, it would be between the number 1 and number 2 players in India. Obviously, it will be a competition issue. In other cases where these mergers have happened, and the Competition Commission of India (CCI) has ordered the sale of the divested products or services, there is no potential player entrant in that market who can buy those products or services. The CCI will have to definitely step in,” says a New Delhi-based senior competition lawyer who requested anonymity because of the nature of his work.
Any hurdles ahead?
There’s every chance that an Ola-Uber merger could face possible regulatory hurdles in India. Why? Because even if a conservative estimate of their combined market share is considered (90-95%), it would constitute a monopoly in the app-based taxi booking market under the terms of India’s competition act.
The CCI, sources say, is keeping a close eye on the proceedings in Singapore, where the Competition Commission of Singapore (CCS) is currently probing the merger between Uber and Grab.
The Grab merger has been further complicated by Uber’s joint venture with ComfortDelGro, where the latter acquired a 51% stake in Uber’s car rental subsidiary in Singapore. That deal is also under CCS scrutiny, with the initial proposals of the joint venture rejected by the competition regulator.
Similarly, the Philippine Competition Commission has halted the Grab-Uber merger following a suo motu review. According to a report in Sun Star Manila, the decision was taken “after both parties failed to inform the antitrust body about the transaction.”