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Uber Ends Board Spat, Sets Up Softbank Deal -- WSJ

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11/13/2017 | 02:48am EDT
By Greg Bensinger 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 13, 2017).

Uber Technologies Inc. cleared the way for a multibillion-dollar investment led by SoftBank Group Corp. that would transform the corporate structure of the world's most valuable startup and give the ride-hailing company a powerful ally in its battle against global rivals.

The deal, confirmed Sunday by Uber, took shape after former Chief Executive Travis Kalanick and a major investor, Benchmark, reached an agreement over control of board seats, including putting on hold a lawsuit against the former chief, according to people familiar with the matter. The two sides appeared to be at an impasse just days ago.

Once completed, the deal would add six directors and introduce voting changes that would effectively limit Mr. Kalanick's power on the board, the people said. It also would bring Uber needed stability after a year of turbulence: The San Francisco company is still grappling with the fallout from a former software engineer's charges of sexual harassment, among other scandals that led a group of investors to push out Mr. Kalanick in June.

An investment by SoftBank represents an early win for new CEO Dara Khosrowshahi. He is working to overhaul Uber's workplace culture while also battling regulators from Brazil to the United Kingdom over proposed rules that would curtail the company's ability to operate.

"It's a pretty great reset for the company," said Bradley Tusk, a political strategist and investor in Uber. "Everyone staying in is focused on the possibilities of the future and everyone mired in the past and present can move on."

Directors have used the proposed SoftBank deal to push through a sweeping set of board reforms sought by investors. The reforms only kick in if the investment deal is consummated.

"We believe this agreement is a strong vote of confidence in Uber's long-term potential," an Uber spokesman said in an emailed statement. "Upon closing, it will help fuel our investments in technology and our continued expansion at home and abroad, while strengthening our corporate governance."

SoftBank, leading a consortium of investors, has been trying gain at least a 14% stake in Uber, according to the people familiar. A two-pronged investment could total $10 billion, with SoftBank directly contributing at least $1 billion, buying shares that reflect the company's valuation at $68 billion, and buying the rest of the stake from investors at a lower price, the people said.

Details of the tender offer are still to come -- pricing remains an issue -- and could fail to entice enough investors to sell their stakes. If SoftBank doesn't garner at least 14%, the Japanese investor could scuttle the deal, people familiar with the matter have said.

Benchmark agreed to put a hold on its lawsuit against Mr. Kalanick, while the former CEO will allow directors to vote on any future appointees he makes to the board for the three seats he oversees, these people said.

The investor, with a board seat and a stake valued at more than $8 billion, had sued Mr. Kalanick to turn control of his seats back to the board, a move that divided directors. Mr. Kalanick was granted control of three board seats as part of a $3.5 billion investment from a Saudi wealth fund in 2016.

Once the deal is complete, Benchmark will drop its suit, said the people familiar with the matter.

For SoftBank, the deal would give it a stake in all of the world's largest ride-hailing firms. It also already has directors on the boards of ANI Technologies Pvt. Ltd.'s Ola and GrabTaxi Holdings Pte. Ltd., which compete with Uber directly in India, and Singapore and Southeast Asia, respectively.

SoftBank still faces hurdles in its goal of taking a commanding stake in Uber. Benchmark, which controls about 13% of Uber, privately has wavered on whether it will sell based on the valuation of the tender offer, and Mr. Kalanick has indicated he plans to retain all of his roughly 10% stake, according to the people.

Benchmark has said it believes Uber could be valued at $100 billion, though talks on the tender offer have centered on a valuation of around $50 billion, according to the people.

Upon completion of a deal, a set of governance reforms would kick in, including eliminating the outsize voting power of early investors and adding six seats to Uber's 11-person board, two slated for SoftBank, the people said.

The voting provision effectively would limit Mr. Kalanick's control by creating equal voting power among shareholders. Still, with oversight of three board seats, he would remain an influential force at the company he co-founded eight years ago, and he remains in close contact with Mr. Khosrowshahi and other executives.

Mr. Kalanick in September unilaterally filled two board seats, which surprised fellow directors and the new CEO. He named two well-known executives in former Xerox Corp. CEO Ursula Burns and former CIT Group Inc. CEO John Thain.

Uber's board has set a deadline to hold an initial public offering sometime in 2019. That gives the company and its new CEO some time to repair its damaged reputation, fill a number of top executive roles, resolve a series of prominent lawsuits and improve financial losses that totaled more than $3 billion last year.

Write to Greg Bensinger at greg.bensinger@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
EURO / BRAZILIAN REAL (EUR/BRL) 0.26% 4.4388 Delayed Quote.-0.07%
SOFTBANK GROUP CORP -1.11% 4897 End-of-day quote.-30.09%
UBER TECHNOLOGIES INC 6.05% 35.23 Delayed Quote.0.00%
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