From Naked Capitalism:
Anyone who has been in the business of selling high end (or even not so high end) wares knows that creating the perception that what you have on offer is desired by other can make the sale. And Uber seems to have done a great job of spinning a tale that there is keen investor interest via a New York Times story titled, Uber Board Considers 3 Investment Offers to Buy Company’s Shares by Mike Issac and Kate Benninger. If the story weren’t so patently one-sided, it might even seem plausible....MUCH MORE
We’ll get to the details in due course, but let’s make the most important observation firt. There is no evidence that there is an “offer” to buy Uber shares, let alone three offers. The normal process would be a non-binding letter of intent, specifying a price or price range. If that outline is acceptable to the seller, then they proceed to due diligence and negotiation of more definitive terms.
The article tries to convey the idea that a process like that is underway by saying the board has authorized due diligence. But in its last round of fundraising, Uber refused to include basic information such as revenues and net income. JP Morgan and Deutsche Bank decided to risk alienating Uber in an IPO by refusing to flog this document to their high net worth clients. That means that the supposed “due diligence” may consist of providing basic financial information, as opposed to what most people would understand “due diligence” to consist of (e.g., reading board minutes, access to a data room).
Uber is strongly motivated to make it appear that investors are interested in the company’s shares. In the midst of a stunning reversal, the ride-sharing company has gone from being perceived as a predestined winner to reeling from scandal to scandal. Among its many tsuris, it has suffered a mass exodus of senior “talent” and is now in the midst of a cage match between the investors that ousted CEO Travis Kalanick, and Kalanick’s allies on the board. The venture capital community, and Corporate America generally, has never seen a fight this ugly carried out in public.
So the strategy of the Kalanick allies is to make it appear that they have the upper hand, when the last actual win was scored by the Benchmark side in getting Kalanick booted. And Benchmark also seems to have checked Kalanick’s effort to return though their lawsuit filed last Thursday accusing him of fraud.
Kalanick backers, led by Shervin Pishevar, have claimed they can buy Benchmark out. The comical bit is that the tone of a letter signed by Pishevar and two other Uber shareholders released on Friday is they can force Benchmark to sell. If they can actually come up with a price that Benchmark would accept, from Benchmark’s perspective, it would be like throwing Br’er Rabbit in the briar patch.
As those who have been following the Uber slugfest know, Benchmark’s beef with Kalanick was he wanted to put off a liquidity event as long as possible. Aside from the general tendency of venture capitalists to want their money back sooner rather than later, Benchmark may have understood by virtue of not having imbibed the Kalanick Kool-Aid that Uber was never going to be profitable, and once word got out, its sky-high valuation would become a thing of the past.
So in theory this isn’t nuts, except there is no reason to believe the Kalanick side can pull this off, as in deliver a price high enough that Benchmark will accept for enough shares (which is apparently 75% of Benchmark’s stake) to get Benchmark off the board. Even though Benchmark got in at a bargain basement price, and may understand that Uber’s valuation is on a slippery downhill slope with little prospect of recovery, they may still suffer from the cognitive bias of anchoring, and thus may not buy the premise that getting out at what would look like a ginormous discount would look like like a brilliant trade 18 months down the road.
Shorter: there’s no sign in the press so far that Benchmark is on board with the plan that the Kalanick faction has cooked up. That could just be simple “show me the money,” keeping a poker face, or anticipating that even if Pishevar and his allies manage to find somechumpsinterested parties, it will fall vastly short of what is needed to buy Benchmark out.
But the Kalanick faction has every reason to take any and every thin shred of interest and try to paint it as proof that their scheme is moving forward. The fact that Pishevar & Co. leaked their letter to the Benchmark side on Friday and then planted a story that is running in the Monday edition of the New York Times smacks of an over-eager effort to create the perception of momentum.
Our Uber expert, Hubert Horan, dissects the New York Times report in more detail. In short form, the story again flogs the idea that SoftBank might be interested and also claims that Pishevar and his buddies really do have investors who want to make a bid rich enough to take Benchmark out. That claim that didn’t seem credible last Friday and nothing has been offered to make that seem more credible now....
