A person checking their Uber app in London

Uber acquires rival in largest-ever Middle East tech deal

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Ride-hailing service Uber has announced that it has acquired its main rival in the Middle East, Careem, in the largest tech acquisition in the region.

Careem is headquartered in Dubai, UAE. The company – which was launched several years before Uber was introduced to the Middle East – has proved Uber’s main competition in the region. It claims to have more than a million drivers offering rides and deliveries to app users in 15 countries across the Middle East, South Asia, and North Africa.

In 2018, the company was valued at over $2bn (£1.5bn).

Shareholders in the company, including German automaker Daimler AG, Saudi billionaire Prince Alwaleed bin Talal and Japanese e-commerce firm Rakuten, have agreed to an acquisition valued at $3.1bn (£2.3bn). This consists of $1.4bn (£1bn) in cash and $1.7 (£1.2bn) in convertible notes, which – according to the term sheet – can be exchanged into Uber shares at $55 (£42) per share.

The deal is subject to regulatory approval in various countries, which is unlikely to be received before early 2020.

In an email to his staff, Uber CEO Dara Khosrowshahi said that the purchase represented a “leap” in the expansion of the company in the Middle East: “Five years ago, Uber launched in the Middle East. It was the start of an incredible journey, with millions of rides and drivers finding new ways to move and work in a dynamic region that’s become so important to Uber,” he wrote. “Today we are taking the next step in this journey – well, it’s more like a leap, and a big one: in a few minutes, we’ll announce that we’ve agreed to acquire Careem.”

The multibillion dollar deal – the largest tech acquisition in the Middle East – indicates Uber’s long-term commitment to the region, where one of its most generous investors is based. In June 2016, the Saudi Public Investment Fund invested $3.5bn (£2.6bn) in Uber in what remains the largest single investment from a foreign state to a venture-backed start-up. According to Bloomberg, the Saudi government owns more than 10 per cent of Uber shares.

Under the terms of the agreement, Careem will become a wholly-owned subsidiary of Uber. It will continue to operate as an independent company under the same brand and founding team, led by CEO Mudassir Sheikha. Khosrowshahi said that this corporate framework would allow the company to develop and trial new services – such as high-capacity vehicles and payments – across two strong and distinct brands, while integrating parts of their networks over time to operate and innovate more efficiently.

Sheikha described the deal as a “milestone” for Careem: “This has put our region on the map and has shown it’s a great place to build some of the best technology in the world,” he said in a statement to Careem users.

The acquisition of Careem comes ahead of Uber’s much-anticipated initial public offering (IPO) on the New York Stock Exchange, which is expected in April. According to reports, the company could be valued at as much as $120bn (£91bn), putting it among the largest listings of all time. Uber rival Lyft is set to be listed on Nasdaq with its own IPO this week.

“Uber is capturing every possible opportunity to be the biggest ride-sharing company on the planet,” said Dr Shweta Singha, assistant professor of information systems and management at Warwick Business School. “It’s clear that Uber is moving away from being a ‘vanilla’ car sharing company to becoming a one-stop shop which connects end-to-end transportation.”

“The timing of this deal for Careem is significant, just days after Uber decided to launch its IPO. As well as the regular benefits of an acquisition, such as enhanced economies of scale and improved market reach, it will increase Uber’s stock market valuation and that initial share price,” she added. “In strategy, timing is everything. Acquiring Careem at the right moment shows that Uber has mastered the art of perfect timing.”

Meanwhile, Uber and Lyft drivers in Los Angeles, California, have held a 25-hour strike, following Uber’s recent announcement of a 25 per cent cut in pay per mile driven in the area. Hundreds of Uber and Lyft drivers are thought to have joined the strike, calling for improved working conditions and a reversal in pay cuts.

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