After it’s exit from China in 2016 and Russia last year the US ‘ride-share’ and food delivery company Uber is selling its south-east Asia interests to regional rival Grab. In 2016 Uber sold its China business to local rival Didi Chuxing and to local company Yandex in Russia.
Uber’s Chief Executive, Dara Khorowshahi said the deal would “help us double down on our plans for growth as we invest heavily in our products and technology”.
Grab’s chief executive Anthony Tan said the deal “marks the beginning of a new era” in which the merged business would be better placed to serve customers.
Grab is the most popular ride-sharing company in south-east Asia operating across 8 counties with millions of users. Dara Khorowshahi will also join Grab’s board and it is reported Uber will take a 27.5% share of the company which is based in Singapore.
Both Uber and Grab have said the deal is a win for passengers although some analysts are warning that it could see higher prices.
Transport Analyst Corrine Png from the research firm Crucial Perspective, based in Singapore said, “Industry consolidation will mean fewer choices for commuters and fares are likely to trend higher over time.”
“Uber is seeking an IPO but that might be delayed depending on whether Khosrowshahi is able to address Uber’s cash burn problem as well as countering rival Lyft’s renewed strength in the US.”
“Uber has been expanding over aggressively and assumed that it would be able to outspend Yandex in Russia, Didi Chuxing in China and Grab in south-east Asia but it turns out that Uber’s rivals were equally well-resourced. Uber would have been better off simply investing in Yandex, Didi Chuxing and Grab from the start.”
She added that Uber’s problems had given Lyft the opportunity to gain market share in the US, which remains the world’s most lucrative market for ride-hailing and ride trip data – essential for Uber’s self-driving technology programme. Png expects Uber to focus mostly on the US, India, Latin America and the UK. However, she did not rule out the possibility of Uber exiting India in return for an equity stake in Ola.
Uber have been fighting fierce competition in the sector. Promotions and discounts, offered to drivers as well as riders have meant reduced profit margins and in November, Mr Khosrowshahi, said the company’s Asian operations were not going to be “profitable any time soon”.
The move was not unexpected in the industry as consolidation was widely expected after Softbank Group of Japan made a large investment in Uber last year. Softbank are also a major investor in Uber rivals ‘Didi Chuxing’ in China and ‘Ola’ in India as well as Grab. It is believed to have pushed for consolidation in order to improve revenues.
Uber invested $700m in its south-east Asia business, compared with the $2bn it burned through in China before selling its operations there to Didi.
Last year, as it underwent a fundamental shake-up following a harassment scandal, Uber lost $4.5bn (£3.2bn) – and its chief executive.
Mr Khosrowshahi has been preparing the firm for an initial public offering in 2019. He explained the deal to employees and on Uber’s blog writing “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.”
The deal which includes the sale of all of Uber’s operations in the region, including its key food delivery service Uber Eats. is yet to be approved by local regulators
Grab said., ‘As a result of the merger, the GrabFood service will expand from two to four South East Asian countries by next quarter,’ and help it move towards profitability, and would also help to increase “adoption of the GrabPay mobile wallet and support Grab’s growing Financial Services platform”.
Uber counts the US, Australia, New Zealand and Latin America among its core markets – regions where it has more than 50% market share and is profitable or sees a path to profitability.