Why did Uber sell its Southeast Asian unit to Grab?

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Grab

Grab, the Singapore-based ride-sharing service provider, will take over the Southeast Asian business of California-based rival Uber starting April 8, 2018.

In its official announcement, Grab said the merger, with Grab as the surviving entity, aims to serve their customers in the Asean (Association of Southeat Asian Nations) region better.

“For years now, our two companies have pushed each other to outdo ourselves. To be more inclusive and accessible. To better understand our customers. And to innovate products that anticipate each and every one of your needs,” Grab said.

“And now, we’re coming together to serve you better. As one, we will be able to combine our strengths into a unified platform that serves the daily commuting, delivery and payment needs of millions of people across nearly 200 cities in Southeast Asia,” Grab said.

Grab said the two companies are in the midst of combining their operations and will transition all Uber services over to the Grab app by April 8, 2018.

Prof. Grab John Colley of Warwick Business School said Softbank of Japan is the main force behind the merger.

“There is little doubt that Softbank is behind this rationalization of the taxi hailing market. Softbank has taken substantial shareholding positions in Uber, Grab, Lyft and Didi Chuxing which are all hemorrhaging cash in a battle for market share. Incentives to drivers and passengers are driving the pursuit of a ‘winner takes all’ strategy in markets across the globe,” Colley explained.

"Uber is now under pressure to move towards making money for a 2019 IPO [initial public offering], which has been promised to shareholders. Losses in 2017 of $4.5 billion suggest there is a very long way to go first. Softbank has proposed that Uber retrench back to Europe and North America where it has large market shares and reasonable prospects of emerging as an eventual winner. In China, Russia and now South East Asia it has been out-flanked by local competition with better local knowledge and connections,” Colley said.

Colley said Softbank is the real winner as another source of major losses in two of its investments will be eliminated in the merger. “Expect fares to increase and driver pay to reduce as subsidies are withdrawn as the price wars come to an end. The key question is whether less competitive markets will encourage new challengers to emerge? Switching costs are low for both drivers and customers, and there is no proprietary technology. Higher fares may allow for more local competition to arrive. Even with this move Uber has a long way to go from losses of $4.5 billion to justify a price tag of $48 billion—the price at which Softbank made its investment in Uber,” Colley said.

Uber, an American company, started advising customers that it would “combine our operations with Grab to lead you in the next chapter of ridesharing in the Philippines and across Southeast Asia.”

“What this means for you: we will be transitioning our services over to the Grab platform by April 8, 2018, so all requests after that date should be made from the Grab app. However, you can still use the Uber app in more than 80 countries around the world,” Uber said in the announcement.

The value of the deal, which Grab said was the largest ever acquisition by a Southeast Asian internet company, was not disclosed.

Grab and Uber said in a joint statement the deal would integrate Grab and Uber’s ridesharing and food delivery business in the region into Grab’s existing multi-modal transportation and fintech platform.

Grab said with the combined business, it would drive towards becoming the number one online-to-offline mobile platform in Southeast Asia and a major player

Grab said it would extend its leadership as the most cost efficient Southeast Asian platform, as it took over Uber’s operations and assets in Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

As part of the acquisition, Uber will take a 27.5-percent stake in Grab and Uber CEO Dara Khosrowshahi would join Grab’s board.

“We are humbled that a company born in SEA [Southeast Asia] has built one of the largest platforms that millions of consumers use daily and provides income opportunities to over 5 million people. Today’s acquisition marks the beginning of a new era,” Grab CEO and co-founder Anthony Tan said.

Tan said the combined business would be the leader in platform and cost efficiency in the region.

"Together with Uber, we are now in an even better position to fulfill our promise to outserve our customers. Their trust in us as a transport brand allows us to look towards the next step as a company: improving people’s lives through food, payments and financial services,” he said.

Khosrowshahi said the deal was a testament to Uber’s exceptional growth across Southeast Asia over the last five years.

"It will help us double down on our plans for growth as we invest heavily in our products and technology to create the best customer experience on the planet. We’re excited to take this step with Anthony and his entire team at Grab, and look forward to Grab’s future in Southeast Asia,” she said.

Brian Cu, country head of Grab Philippines, said the combined services of Grab and Uber, signaled a wider network of TNVS drivers and passengers and improved ridesharing services.

Cu said with Grab Philippines' larger fleet of drivers on our platform, passenger transportation needs would be met faster.

“Passengers will get to enjoy shorter waiting times, more convenient and affordable rides through one platform,” he said.

Data from the Land Transportation Franchising and Regulatory Board (LTFRB) show there are 59,020 driver partners in the Philippines as of March 2018.

April 2018

 

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