As readers may recall, your humble blogger and our Uber expert Hubert Horan have been skeptical about Uber’s claims that SoftBank and others are keenly interested in investing in Uber.
A Wall Street Journal story today has the unintended side effect of showing that the “We have tons of buyers hovering” touts can’t even keep their lies, um, story, straight.
The Journal uses a letter issued from the Travis Kalanick allies in the Kalanick v. Benchmark cage match as its anchor. This is the second letter the allies of deposed CEO Travis Kalanick, led by Shervin Pishevar. The first was issued last Friday, objecting to the Benchmark suit against Kalanick and making a clearly not credible threat that wasn’t even couched as an offer: leave the board because we’re buying out 75% of your shares at the current valuation. That would carry a $6.3 billion price tag.
Because the Uber boosters are telling so many howlers, we need to step back to review them:
1. On Friday, Shervin Pishevar plus two other shareholders sent a letter demanding that Benchmark leave the board, on the premise that they would buy at least 75% of Benchmark’s shares, which they acknowledged would cost a minimum of $6.3 billion at current valuations. The idea that anyone with an operating brain cell would spend that much money on Uber, a company that is hemorrhaging cash, with not a dime going into the company, is the most ludicrous thing I’ve read in a very long time. Or as Hubert Horan put it:
….the English language does not have words to describe the mental state of anyone who might be thinking about putting $6.3 billion into Uber at this point (none of which would contribute anything to the company’s future operations).
2. Sunday evening, the overly-obliging New York Times ran a breathless story touting the idea that three investor groups were actually making offers get a piece of the Uber action. In addition to SoftBank and the “trust me, we have the money” Pishevar handwave, the Times added “an investor coalition, led by Dragoneer, which includes the private equity firm General Atlantic and others,” with the barmy idea of buying an itty bit of new shares at the present valuation, and to buy out existing shareholders though a Dutch auction process. We explained long form why that made absolutely no sense and on top of that, would also not get Benchmark off the board.
My take on the Dragoneer “anything but an offer” scheme was it was just another way to explore price. Hubert was more pointed:
Previous reporting about SoftBank suggested they might buy Benchmark’s share at a 40% discount and Issac’s story suggests Dragoneer is interested in a “Dutch auction” that could lead to an even bigger discount. The story here would seem to be “new transactions being seriously reviewed by the Uber Board suggests all reports of company value for many years have been massively overstated”.
So here’s today’s walkback via the Wall Street Journal. Admittedly this is single sourced, so I am surprised the Journal ran this. But it means if nothing else that the Kalanick side can’t even keep its story straight:
The rancor among investors in Uber, which is valued at nearly $70 billion, comes as the company is weighing new funding of at least $1 billion from SoftBank Group Corp. , as well as a potential deal to buy shares from Benchmark or other investors, according to a person familiar with the matter.
SoftBank is part of a consortium that includes Dragoneer Investment Group and General Atlantic, this person said. Other investors would likely be allowed to offer portions of their stake in the company as well, if the board decides to move forward with allowing the investment, this person said, who cautioned that such a deal may not be approved.
Recall the New York Times depicted SoftBank and Dragonner as operating separately. The article was headlined Uber Board Considers 3 Investment Offers to Buy Company’s Shares. Suddenly, a mere three days later, two groups have teamed up after having per the Times gotten so far separately that the board had authorized due diligence?
Remember that the reports that SoftBank is hovering have come from the Uber side, and the struggling ride-sharing company has every reason to hype any “interest,” such as polite, non-committal meetings, as serious. If SoftBank actually were engaged in real talks, we’d expect them to be in buying some or all of the Asian operations, and not in becoming a shareholder in the venture.
And what is the point of selling $1 billion? It doesn’t solve resolve the civil war on the board. Even if the offer were to be real, Benchmark is almost certain not to be willing to sell a 75% interest, which is apparently how much it needs to dispose of in order to be required to relinquish its board seats, for that low a price. And in the unlikely instance that it were, being willing to take that big a haircut would likely freak the other investors out. It would be too dramatic a development to keep secret, and would likely accelerate “talent” departures.
And if a deal gets done at a better price, it just means that everyone would get to take a little money off the table. And despite the claim that they could preserve the valuation of the shares by selling a tiny bit of new shares at a high price and cash the insider out a a lower price, I think they are looking at a nice qui tam suit filed by anyone who could get the details on behalf of public pension funds who have holdings in funds that have invested in Uber. The messaging to the press has made crystal clear that the intent is to perpetrate a fraud in terms of the reported market value. All someone needs to do is get their hands on relevant documents. Mutual funds who have invested in Uber who have a fiduciary duty to their fund investors would also have reason to go after Uber for a stunt like this.
Here is the other cute part of the Wall Street Journal story:
Benchmark has a roughly 13% stake in Uber, which according to Mr. Pishevar is worth about $8.4 billion. He is seeking to buy 75% of Benchmark’s stake, according to people familiar with the matter, who said such a deal would likely require a loan
A loan?. I can’t even find strong enough words with which to heap scorn on this idea. It’s not even worth spending the pixels to debunk it. I would bet on me being able to raise the dead before I’d bet on Pishevar being able to get a $6-$7 billion loan to buy out Benchmark.
And on top of how this reveals that even Uber’s efforts to pretend that it’s got anything other that at best vultures circling the company, let us not forget another key bit of information in the Wall Street Journal story:
Mr. Pishevar said in his letter that Benchmark has threatened to block any funding deals until Mr. Kalanick relinquished the board seats, which others familiar with the matter have also alleged.
Mind you, this isn’t news per se, but it confirms a widely held suspicion. And Hubert flagged the implications earlier this week:
Benchmark’s private outreach to SoftBank, and the suit it filed against Travis Kalanick were designed to force two possible outcomes favorable to Benchmark—locking in staggering profits ($8.4 billion on a $27 million investment if its position was completely liquidated), or a second-best but more feasible situation where Kalanick and his major allies were ousted, and early investors established Board control and could appoint a CEO empowered to make major changes to move rapidly towards an IPO.
Pishevar’s interests were the exact opposite of Benchmark’s (ensure Board control and the CEO decision remained in the hands of Kalanick allies). Issac’s story [in the New York Times] implies that Uber’s Board has begun to seriously evaluate these proposals but ignores the fact that moving forward on any of them requires resolving the ugly disagreements about Board control, strategic direction, and the type of new CEO/CFO/COO that should be selected.
Nor does Issac ever explain how a Board wracked by factional fighting and lawsuits could ever come to agreement about any of these proposals….It isn’t shocking that new sets of outsiders such as Dragoneer might suddenly emerge to see if there might be a way to profit from Uber’s turmoil and desperation.
Benchmark has the upper hand. Recall the saying from Dune:”The power to destroy a thing is the absolute control over it.”
Benchmark may not be able to implement the changes it wants, but it can destroy Uber by blocking the CEO selection process and any fundraisings. The only move that Kalanick and his band of no longer so merry investors can take against Benchmark might be a countersuit, but there’s no basis for a judge forcing Benchmark to play more nicely with the other investors, much the less on any time frame that will make a difference in the war for control.
And by virtue of having gotten in for a measly $27 million, Benchmark has the least to lose. The Kalanick allies need to come to grips with the fact that Benchmark is better bunkered than they are and has already shown it is much more ruthless than they are. But even if they relent, there is going to be so much hostility and continued dysfunctional behavior at the board level that the odds of Uber even getting back to functioning at a semblance of normalcy is an even more uphill battle.
And then Uber has the wee problem of dealing with the fact that is has no plausible path to profits, save perhaps by retreating into its best niches, which means shrinking to a fraction of its current scale. There is simply no outcome that does not torch tons of Uber’s fictive current valuation. But watching the bonfire continues to be mighty entertaining.