SoftBank, Saudi Arabia are big winners from Uber IPO

SoftBank, Saudi Arabia are big winners from Uber IPO
Uber via CNN

Uber’s IPO is generating plenty of excitement in Silicon Valley. But foreign investors could be among the biggest winners thanks to carefully timed bets on the company.

Japan’s SoftBank and Saudi Arabia both stand to make billions if the stock market listing goes according to plan.

They’re the main backers of the SoftBank Vision Fund, Uber’s largest shareholder with a 16.3% stake. Saudi Arabia’s sovereign wealth fund also owns a direct stake of 5.3%.

Similarly poised to benefit from a successful IPO: SoftBank CEO Masayoshi Son. The billionaire has been pursuing an aggressive strategy of investing in startups that he hopes will grow into industry leaders. Uber’s IPO could be the big win Son needs to convince skeptics and pursue more deals.

“It’s going to give them more momentum in these types of investments,” said Daniel Ives, managing director of equity research at Wedbush Securities.

Making the bet

SoftBank took a risk in December 2017 when it decided to pump more than $7 billion into Uber, betting it could help reform a promising company in disarray.

Uber was valued at $48 billion back then but had been producing a steady stream of negative headlines. It faced criminal probes, a lawsuit from Google’s self-driving car unit over alleged stolen trade secrets, and internal investigations into the company’s toxic culture.

SoftBank figured that board changes and new leadership could turn the company around. To pave the way for the deal, former CEO Travis Kalanick agreed to cede some of his control.

“They were there when Uber needed them,” Ives said, calling the Vision Fund the “lynchpin” that kept Uber together at a pivotal moment.

In return, SoftBank was allocated two seats on the board. A SoftBank executive told Reuters on Friday that the company has left those seats open pending a US national security review. The government has reviewed SoftBank’s investment but not the board positions, he said.

Saudi Arabia’s Public Investment Fund, which invested in 2016, also has an Uber board seat occupied by its managing director Yasir Al-Rumayyan. The fund put up $3.5 billion in June 2016, which Kalanick at the time called a “vote of confidence.”

The payoff

Uber’s IPO is likely to be one of the biggest ever by a technology company. The company is playing up its ambitions not just in ride sharing, but also in transportation, dining and logistics more broadly.

That would be good news for SoftBank, Son and Saudi Arabia’s sovereign wealth fund.

SoftBank expects that its money will give Uber enough scale to keep competitors at bay until using the app becomes a habit for most people, according to Bill Aulet, a professor at the MIT Sloan School of Management.

Once that happens, the platform will be able to continuously add drivers and riders, he said.

Of course, big risks remain. Uber lost $1.8 billion in 2018, an unprecedented amount for a company about to go public. And shares of Lyft, Uber’s chief competitor, quickly fell below their IPO price after it went public last month. They hit an all-time low this week.

Uber is also still mired in extensive legal trouble. In its IPO filing, the company cites “a number of inquiries, investigations, and requests for information from the US Department of Justice and other US and foreign government agencies,” which it says could harm the business.

For SoftBank, the promise appears to outweigh the potential downsides.

The IPO amounts to a “shot in the arm” for the Vision Fund and will boost future fundraising efforts, said Steven Kaplan, professor of entrepreneurship and finance at the University of Chicago’s Booth School.

SoftBank’s gamble on Uber is also hedged by the company’s stakes in other ride-hailing services, including China’s Didi Chuxing and Southeast Asia’s Grab.

— CNN Business’ Seth Fiegerman and Sara Ashley O’Brien contributed to this report.