Uber’s Grab merger may be undone, threatening new Middle East deal

Uber’s Grab merger may be undone, threatening new Middle East deal

Chris Middleton reports on how a ruling in Southeast Asia today could damage Uber’s prospects of a new Middle East deal.

Uber may have grabbed more than it can handle in Asia. The Southeast Asia deal between the frictionless transport provider and local rival Grab may have been unlawful, according to Singapore’s antitrust regulator. As a result, it may have to be undone.

The deal took place at the end of March, days after the fatal accident involving an Uber autonomous test vehicle.

At present, Singapore’s watchdog is considering hefty fines on the two companies, along with remedies to ensure that competition is encouraged to return to the local ride-sharing market.

Grab and run!

As Internet of Business reported in March, Uber sold its ride-share and delivery business in the region to Grab, the most popular service locally with millions of customers. In return, Uber secured a 27.5 percent stake in the company, with Uber CEO Dara Khosrowshahi joining the board.

In an email to Uber staff announcing the deal, Khosrowshahi said, “This transaction puts us in a position to compete with real focus and weight in the core markets where we operate, while giving us valuable and growing equity stakes in a number of big and important markets where we don’t.

“While M&A will always be an important value-creation tool for our company, going forward we will be focused on organic growth.”

However, the effective merger prompted immediate investigation by the Competition and Consumer Commission of Singapore (CCCS).

Penalty shootout

The Commission said today that the transaction went ahead despite the companies being aware that it would reduce competition in the region. As a result, it would have no alternative but to impose a financial penalty.

According to Reuters, this is the first time that the Commission has announced a fine on participants in a merger. The CCCS said it will consider representations from both companies before it finalises the sums involved.

It has also proposed measures to address the reduced ride-share competition in Southeast Asia, such as removing exclusivity obligations on drivers who use Grab’s ride-hailing platform.

Such a move could undermine any future attempts by gig economy workers in the region to claim that they are employees of on-demand services.

The CCCS has also proposed that Grab maintain its pre-merger pricing algorithm and driver commission rates until competition is revived, according to Reuters.

For now, the authority is inviting public feedback on its proposed remedies, but has said that if they fail to kickstart local competition, or are deemed insufficient in public consultation, the deal will have to be unwound.

Middle-East murmurs

The news will be ringing alarm bells at Uber head office, because the company is considering a similar deal in the Middle East.

Uber is reportedly in preliminary talks with local rival Careem to combine ride-hailing services in the region, in the run-up to Uber’s planned IPO next year. Fierce rivalry in the Middle East is proving costly to both companies, according to local reports.

Bloomberg reports that several deal structures have been discussed, including Careem’s management running a combined business under one or both local brands. Another option is for Uber to acquire Careem outright.

However, news that the CCCS is acting against the Grab merger may damage the prospects of any deal that reduces competition elsewhere, and alarm Uber and Careem investors.

Any Middle East tie-up that retains both brands may keep up appearances of local competition, but the shared financial structure and profits would be investigated by regulators.

Internet of Business says

While ‘new Uber’ has taken a more conciliatory approach to business under Khosrowshahi’s leadership, while repositioning itself as an Amazon-style hub for all forms of connected transport, its recent negotiations suggest that it is still a company that wants to sow up and simplify regional markets as swiftly and aggressively as possible.

Less of the cowboy of old, perhaps, and now more of a smooth-talking suit with a pocketful of dollars – and a hint of muscle lurking in the backroom.