Global ride-hailing firm Uber has agreed to buy Careem, its Middle East rival, putting Uber in the lead position within a competitive region.
Uber operates in more than 70 countries, but it has struggled with competitors in Latin America and India and with regulators in Europe. Now it can claim dominance in a growing region for ride-hailing outside of the United States. Uber will pay just over $3 billion to acquire Careem, including $1.4 billion in cash and $1.7 billion in convertible notes. The cash-and-stock deal buys out all of Careem’s external investors and gives Uber full ownership. Careem stock will be converted to Uber equity.
Founded in 2012, Careem has a larger presence in the Middle East, North Africa, Pakistan and Turkey, operating in 98 cities versus Uber’s 23 or so locations. “An Uber-Careem merger underscores the huge potential of car-hailing in the Middle East,” said Sam Blatteis, CEO of The MENA Catalysts, a public policy advisory and research firm. The deal also highlights the Middle East’s burgeoning technology sector, which drew the attention of investors in 2017 when Dubai-based ecommerce firm Souq.com was acquired by Amazon. David Chao, co-founder of venture firm DCM, said it was the “first unicorn exit” in the Middle East and representative of things to come.
For Uber, the deal represents a much-needed win following a series of divestments overseas. The Silicon Valley-based company’s standing as a competitive global ride-hailing player was thrown into doubt after it sustained heavy losses and sold its operations in China, Russia and Southeast Asia to local rivals. Iranian-American Dara Khosrowshahi, who replaced co-founder Travis Kalanick as Uber’s CEO in 2017, called the deal with Careem “an important moment for Uber.”
The agreement follows more than nine months of negotiations between Uber and Careem. For years prior, the two companies had competed for drivers and riders. This drove them to offer discounts and subsidies, which pushed prices artificially low. Uber was eager to reach an agreement before the company kicks off its “roadshow” in April, when it will meet with investors in the lead-up to its much-anticipated IPO. Uber is expected to receive a valuation of at least $100 billion.
The acquisition makes Dubai-based Careem a wholly owned subsidiary of Uber. The Careem brand and app will stay intact, at least initially. Careem’s three co-founders, Mudassir Sheikha, Magnus Olsson and Abdulla Elyas will stay on following the acquisition. But as Reuters reports, the company’s board will be overhauled. Three seats will go to representatives from Uber, and two others to Careem, specifically Olsson and Sheikha, who is Careem’s CEO.
The deal is expected to close in the first quarter of 2020, which means it will not be reflected in Uber’s first couple of quarterly earnings releases as a public company, but it will likely be disclosed in a public IPO filing. As of this writing the agreement is subject to regulatory approval, which could alter the terms.