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Uber board battle ends, stage set for SoftBank-led $10-bn investment

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14 November 2017

Uber Technologies Inc's board members have settled their dispute to allow a multibillion-dollar investment by SoftBank Group Corp to proceed, and resolved a legal battle between former chief executive Travis Kalanick and a prominent shareholder.

The Uber board has approved SoftBank Group Corp's offer to buy a multibillion-dollar stake in the ride-hailing company, setting the stage for one of the largest private startup deals ever.

The agreement lets SoftBank and other firms invest up to $1 billion in Uber and proceed with a tender offer in coming weeks to buy up to $9 billion in shares from existing investors.

The deal could still fall through if there aren't enough interested sellers. The deal also includes Uber governance changes.

''We've entered into an agreement with a consortium led by SoftBank and Dragoneer on a potential investment," Uber said in a statement. "We believe this agreement is a strong vote of confidence in Uber's long-term potential. Upon closing, it will help fuel our investments in technology and our continued expansion at home and abroad, while strengthening our corporate governance.''

Venture capital firm Benchmark, an early investor with a board seat in Uber, and Kalanick have reached an agreement over terms of the SoftBank investment, which could be worth up to $10 billion.

The Uber board first agreed more than a month ago to bring in SoftBank as an investor and board member, but negotiations have been slowed by ongoing fighting between Benchmark and Kalanick. The agreement struck on Sunday removed the final obstacle to allowing SoftBank to proceed with an offer to buy to stock.

SoftBank, a Japanese conglomerate that has become a heavyweight in Silicon Valley tech investing, is joined by Dragoneer Investment Group in leading a consortium of investors that plans to invest $1 billion to $1.25 billion in Uber, and in addition, will buy up to 17 per cent of existing shares from investors and employees in a secondary transaction. The terms were signed on Sunday, although the tender offer would likely take weeks to complete.

Uber is valued at $68 billion, the most highly valued venture-backed company in the world. SoftBank's roughly $1-billion investment of fresh funding is expected to be at the same valuation. The secondary transaction, or the purchases from employees and existing investors, would be at a lower valuation.

A spokeswoman for Benchmark did not immediately respond to Reuters' request for comment, while a spokesman for Kalanick declined to comment.

The pact gets Uber closer to clearing a major hurdle as it tries to overcome a series of scandals, leadership turmoil and executive departures. SoftBank, a well-connected Japanese technology company, could help Uber strike deals with competitors in India or Southeast Asia. SoftBank is a major investor in Ola and Grab, Uber's rivals in those regions.

Uber's board already approved a slate of governance reforms that restrict Kalanick's role at the ride-hailing company, including equalising the voting power of different share classes and increasing the size of the board to 17 to allow for new independent directors. Those changes are contingent on the SoftBank investing in Uber.

After a long negotiation with Uber, SoftBank agreed to buy shares at a single price as long as sellers were barred from working together to push up the price.

Then Kalanick threw a wrench in the deal, insisting that Benchmark put a hold on its lawsuit against him before he would approve it. Finally, this week, Benchmark relented after Uber's new chief executive officer Dara Khosrowshahi and other board members urged the firm to do so, according to Bloomberg citing sources.

Completing the SoftBank deal would allow Uber to open a new chapter after a year of controversy, including the resignation of Kalanick, the ouster of several top executives, sexual harassment and discrimination allegations, and multiple federal criminal probes. The deal is also tied to new governance rules that aim to distribute power more equally and bring more oversight to the company.

"Uber had a remarkable first six or seven years, a bumpy past two years, and now the SoftBank deal allows for a full reset," Bradley Tusk, an Uber investor and political strategist who works with tech companies, told Reuters.

It would also be a major victory for Khosrowshahi, who often served as a mediator to help broker the agreement, according to a third person familiar with the matter.

To allow the deal to go forward, Benchmark has agreed to immediately suspend its lawsuit against Kalanick, which it filed in August in an effort to diminish the ex-CEO's power at the company and force him off the board, reports said (See: Former Uber chief Travis Kalanick strikes back at Benchmark Capital).

On the successful completion of the SoftBank investment, Benchmark would drop the lawsuit entirely.

In turn, Kalanick must receive majority board approval should he want to replace the board seats over which he has control. In addition to his own seat, Kalanick controls two more, which are occupied by Ursula Burns, the former Xerox Corp CEO, and former Merrill Lynch & CO Inc CEO John Thain. Kalanick appointed them in September without first consulting with the board.

Uber plans to run newspaper ads informing investors about the share purchase, and SoftBank will propose a price at which it will buy stock. The company has threatened to invest in ride-hailing rival Lyft if it does not get the Uber deal done.

The deal gives early investors such as Benchmark, whose Uber stake is worth nearly $9 billion, the opportunity to cash out a very lucrative investment.





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