Uber Buys Middle East rival Careem For $3bn

Uber is buying Middle Eastern rival Careem for $3.1bn in a deal that marks a shift in the US ride-hailing company’s global strategy ahead of its long-awaited blockbuster initial public offering.

Uber will pay $1.4bn in cash and $1.7bn in notes that convert to Uber equity at $55 a share, marking the company’s biggest acquisition to date. The transaction, which is subject to regulatory approval, is expected to close in the first quarter of 2020.

For loss-making Uber, taking over its strongest competitor in the region cements a dominant position in a fast-growing international market in the run-up to its IPO.

Uber is expected to publish its paperwork as soon as next month for a listing on the New York Stock Exchange that could value the company at more than $100bn. The deal marks a reversal from Uber’s run of exits from costly markets such as China, south-east Asia and Russia in exchange for minority stakes in competitors Didi Chuxing, Grab and Yandex respectively.

Careem will be operated as a fully owned subsidiary of Uber and will continue to exist as a standalone brand and service alongside Uber’s app in markets where they both compete.

Mudassir Sheikha, Careem’s chief executive and co-founder, will run the business and report to a board made up of three Uber representatives and two Careem representatives. “After careful consideration, we decided that this framework has the advantage of letting us build new products and try new ideas across not one, but two, strong brands, with strong operators within each,” Dara Khosrowshahi, Uber chief executive, wrote in a memo to employees.

He added that the companies would integrate parts of their networks but did not provide details or discuss what cost savings they would pursue.

Uber and Careem compete in passenger transport and food delivery across the Middle East, North Africa and South Asia. The company was founded in 2012 by Mr Sheikha and Magnus Olsson, who previously worked together at the consultancy McKinsey.

Careem was valued at about $2bn in a fundraising round last year. Careem’s backers include Didi, Rakuten and Daimler. It also has a significant pool of Saudi investors, including Prince Alwaleed bin Talal’s Kingdom Holding Company, STC Ventures and Al Tayyar Group. Uber received a $3.5bn investment from the kingdom’s state-owned Public Investment Fund in 2016.

Dubai-based Careem, with 33m registered users and 1.2m drivers across 98 cities, was keen to maintain its brand through the transaction. “Independence was conditional,” said one person close to the transaction. “People are engaged in the brand as a local champion.”

Uber has been spending heavily in markets including the Middle East to subsidise rides and win market share. Discounts and incentives to lure passengers and drivers have slowed revenue growth in recent quarters. Since taking the helm in 2017, Mr Khosrowshahi has been seeking to show investors he can cut losses and be a responsible steward of capital by pursuing geographic areas and business lines where the company can become the market leader and retreating from those where it cannot.