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SoftBank’s Uber deal may put rival Ola in an awkward spot

LiveMint logoLiveMint 26-07-2017 Mihir Dalal

Bengaluru: A proposed investment by SoftBank Group Corp. in cab-hailing service Uber Technologies Inc. may put rival Ola (ANI Technologies Ltd) in an awkward spot as its largest shareholder and only strategic investor would then own a large stake in its main competitor.

The Wall Street Journal newspaper reported on Tuesday that SoftBank had started discussions to pick up a “multibillion dollar” stake in Uber, which is valued at $68 billion.

If the deal, said to be in the early stages, goes through, SoftBank will have direct ownership in cab-hailing companies in most of the world’s biggest markets including the US, India and China.

Last August, Uber, the world’s most valuable start-up, sold its China unit to local rival Didi Chuxing, in a deal that made Uber the largest shareholder in Didi, which in turn invested $1 billion in Uber’s global entity, according to Bloomberg and reports in other publications.

That deal shocked investors and executives at Ola, which counts Didi as a small but strategic investor. The Uber-Didi deal may have violated the shareholder agreement the Chinese company signed with Ola, Mint reported in August 2016.

If SoftBank’s proposed investment in Uber materialises, the Japanese telecoms and Internet conglomerate, which launched a $100 billion fund for tech investments in May, may try to arrange a merger between Ola and Uber, analysts said.

Ola and Uber India are spending massive capital on driver incentives and customer discounts to popularize cab-hailing. In the year ended 31 March 2016, losses at Ola nearly tripled to Rs2,313.7 crore. Clearly, this level of spending is unsustainable but losing market share is also unpalatable for both Ola and Uber.

The two companies differ over who controls how much of the market. Uber claims it is bigger than Ola but executives and investors at Ola claim that Uber is less than half of Ola’s size. There is no conclusive way of checking either claim.

Ola didn’t respond to an email seeking comment. SoftBank declined to comment.

“Consolidation as a strategic initiative is a Mantra in Internet commerce across the world and when there are common investors, these initiatives could become relatively easier. Cab hailing is one of the key areas within Internet commerce, where there is cut throat competition, and we have seen a lot of interest and action globally by investors,” said Sreedhar Prasad, partner, Internet business and start-ups, KPMG.

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