Monday, November 5, 2018

"The Inside Story of How Uber Got Into Business With the Saudi Arabian Government"

A major piece from Bloomberg, November 3:
Even as Uber’s lawyers finalized the details of the deal, they still couldn't quite believe it would really happen. The Saudi Arabian government was set to give the San Francisco-based startup $3.5 billion, an astronomical amount. The company’s legal team had to double-check that it was even possible to send that much money in a single wire transfer. But on June 1, 2016, the Saudi Public Investment Fund sent Uber Technologies Inc. the cash in one lump sum. It was the largest single investment from a foreign government to a venture-backed startup everand still is.

The sprawling consequences of that mega-deal have yet to fully unfold. Two years ago, the money helped Uber settle its war with Didi Chuxing in China, fortified its position against rival Lyft Inc. and empowered then Chief Executive Officer Travis Kalanick ahead of a long, pitched battle with investors who ultimately pushed him out. Now, the deal is drawing Uber into a global reckoning over the business world's relationship with Saudi Arabia.

Bloomberg has learned that through direct and indirect holdings, the Saudi government owns more than 10 percent of the ride-hailing company. Its board also includes Saudi official Yasir Othman Al-Rumayyan, the managing director of the kingdom’s sovereign wealth fund, and an ally of Saudi Crown Prince Mohammed bin Salman, the fund’s chairman. As the fallout from the murder of Washington Post columnist Jamal Khashoggi at the hands of Saudi agents roils Silicon Valley, there is arguably no company more deeply intertwined with Saudi Arabia than Uber. 

That’s complicating efforts by Uber’s current CEO, Dara Khosrowshahi, to put a new face on the company as it moves toward an initial public offering targeted for early next year. Khosrowshahi, an Iranian immigrant, was one of the first to pull out of a Saudi-led investing conference in October. But he'll have a harder time severing his company's broader relationship with a government that's now been implicated in the grisly murder of a journalist.

What follows is the strange story of the massive deal that has already shaped one of the world’s most valuable startups, and whose effects will ripple well into the future. It spans Uber’s operation to spy on a Chinese rival, an international bribery investigation, and the starkly different positions of Khosrowshahi and Kalanick in the face of a simmering geopolitical crisis. This account is based on more than half a dozen current or former employees and investors, all of whom spoke on condition of anonymity in order to protect their relationship with Uber.

The financial opportunity in Saudi Arabia first appeared on Kalanick’s radar in 2016. That spring, then Uber executive David Plouffe, Barack Obama’s former campaign manager, was making a three-city tour to Cairo, Dubai and Riyadh. Uber was already operating in Saudi Arabia, where it pitched its service as a safe way for women to get around in a country where they were not allowed to drive. In Riyadh, Plouffe met with top Saudi officials, including Public Investment Fund manager Al-Rumayyan. In those talks, Plouffe learned more about the Saudi government’s plan to diversify its investments and reduce its dependence on its vast oil industry, said two people familiar with the discussions. The Public Investment Fund declined to comment for this story.

At the time, Uber was thirsty for more money. The company was deeply embroiled in a drag-out fight in China with local rival Didi Chuxing. The two companies were spending billions discounting rides and recruiting drivers in an attempt to crush one another. Gaining market share had turned into a question of who could light more money on fire. By 2016, Uber realized it would have to call a truce, and that cash on hand would be a key part of leverage in the ultimate deal. The company with more money, it was clear, could hold out longer and win better terms.

So when Apple Inc. invested $1 billion in Didi in May 2016, Uber panicked. The company had raised plenty of money, but it was spending it on unprofitable businesses all over the world
It was against this backdrop that Uber started to discuss a possible deal with the Saudi Arabian sovereign wealth fund. The terms were relatively straightforward. The Saudis would buy shares at the same price as a previous investment led by Tiger Global Management earlier that year, valuing the business at $62.5 billion. The Public Investment Fund had one primary request: It wanted a board seat. Uber agreed.

Kalanick was also able to use the investment to expand his own power within Uber. The CEO directed his staff to draft documents that would expand the board, not just including a new seat for the Public Investment Fund, but also three other board seats he would be able to fill.  His demands came at a time when Uber was flying high, and its board largely served as a rubber stamp, according to people familiar with the company. No one really considered blocking Kalanick’s power grab, especially since it was tied to a $3.5 billion investment. The board unanimously approved the changes......MUCH MORE