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Uber buys rival Careem in $3.1 billion deal to dominate the ride-hailing in the Middle East

SAN FRANCISCO (Reuters) – the Global ride-hailing company Uber Technologies Inc. will spend $3.1 billion to acquire in the Middle-East rival Careem, the buy of a dominant position in a competitive region ahead of a hotly anticipated initial public offering.

The Uber-Hub is to see in Redondo Beach, California, USA, 25 March 2019. REUTERS/Lucy Nicholson

Uber said late Monday night it would pay $1.4 billion in cash and $1.7 billion in convertible bonds in a deal that gives it full ownership of Careem. The long-expected agreement ends more than nine months of start-and-stop negotiations between the two companies and hands Uber a much-needed victory after a series of overseas disposals.

The notes will be converted in Uber shares, at a price equal to € 55 per piece, the Uber said, marking a nearly 13 percent more than Uber, the proportion in the latest round of funding, led by SoftBank Group Corp more than a year ago.

The acquisition makes Careem a wholly owned subsidiary of Uber and will Careem brand and app intact, at least in the first instance. Careem co-founder Mudassir Sheikha, Magnus Olsson and Abdullah Elyas stay with Careem after the acquisition, the companies said.

However, Careem the board of directors will be overhauled, with three seats going to Uber representatives and two belong to Careem. Sheikha, who is Careem’s CEO, and Olsson will have board seats. An Uber spokesperson declined to say who Uber would appoint the board of directors.

The $3.1 billion cash-and-stock buy buy from all outside Careem investors, the companies said, and Careem stock will be converted into an Uber equity. Careem had raised less than $800 million from investors and in October had a $2 billion valuation. Proponents are German carmaker Daimler AG , a Chinese ride-hailing company Didi Chuxing, Japanese internet company Rakuten Inc and the Saudi investor, Kingdom Holding company.

The deal is expected to close in the first quarter of 2020, the companies said, which means that it will not be reflected in Uber first couple of quarterly releases as a public company, although it will probably be included in a public IPO filing. Uber will kick of the IPO of the next month and is expected to receive a valuation of at least $100 billion.

The agreement is subject to the approval by the antitrust officials in the countries where Careem works, which prevent the deal from moving forward or force the companies to change the terms.

MONTHS OF NEGOTIATIONS

The deal is particularly important for Uber, whose ability to be a competitive global ride-hailing player had been questioned after the sale of its activities in China, Russia and Southeast Asia to local rivals after sustaining heavy losses.

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Uber Chief Executive Dara Khosrowshahi in a statement called the deal with Careem “an important moment for Uber.”

Uber is excited to reach an agreement for the company begins with the “roadshow” as it is with the public market investors prior to the listing of the shares on the New York Stock Exchange. The deal makes Uber in order to claim dominance in a growing region for ride-hailing from outside the United States.

Uber is active in more than 70 countries around the world, but with fierce competition in Latin America and India, and regulations in Europe.

The talks between the companies had dragged on since at least last summer, sources told Reuters, although they are not seriously to be until the end of the year. The companies have for years fought in a contest for drivers and riders who had need of discounts and subsidies, and pushed the prices artificially low.

Careem in the course of last year, the company quickly grew, including adding a delivery service, and went on to nearly double the valuation, under pressure Uber to increase its offer price.

At the end of last year, Careem was entertaining the interest of the investors for another funding round, when Uber moved aggressively to buy the company outright, the sources said.

SPOTLIGHT ON THE MIDDLE EAST TECH

Careem, which was founded in 2012, has a larger presence than Uber in the Middle East, North Africa, Pakistan and Turkey, which are active in 98 cities, compared to Uber is about 23 locations.

“An Uber-Careem merger underlines the huge potential of the car-hailing in the Middle East,” said Sam Blatteis, CEO of the MENA-Catalysts, in the Middle East public policy advisory and research firm.

The merger follows the $580 million acquisition of Dubai-based e-commerce company Souq Group Ltd by Amazon.com Inc in 2017, according to a U.S. Securities and Exchange Commission to submit, to bring to the attention of the Middle East and burgeoning technology scene.

A Careem employee shows the logo of the company, delivery service Careen NOW on her mobile to the head office in Dubai, UAE, December 13, 2018. Photo December 13, 2018. REUTERS/Satish Kumar

“It is the first ‘unicorn’ exit ‘ in the Middle East, and it is representative of the things that come from the Middle East,” said David Chao, co-founder and general partner at venture firm DCM and a Careem investor, referring to start-ups with a value of $1 billion or more.

Uber said its revenue last year was $11.3 billion, while the total of the bookings of trips were $50 billion. But the company lost a whopping $3.3 billion, excluding the proceeds from the sale of the foreign business units in Russia and Southeast Asia.

Careem provides no information on the profit.

Reporting by Heather Somerville in San Francisco and Alexander Cornwell and Saeed Azhar in Dubai; Editing by Leslie Adler, Lisa Shumaker and Keith Weir

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