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 ever—and 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
